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Annual Report and Accounts
2011

Table of contents

  • Page 1
    Annual Report and Accounts 2011

  • Page 2
    ... Our five key themes RBS in the community 250 Governance 305 Financial statements 432 Additional information 465 Shareholder information The RBS Group (RBS) is an international banking and financial services company. Headquartered in Edinburgh, the Group operates in the United Kingdom, Europe...

  • Page 3
    ... 400 communities using our 19 mobile branches Supporting enterprise We provided more than 40p in every £1 lent to UK small and medium-sized businesses We opened nearly 120,000 new start-up accounts across the UK Loan:deposit ratio (4) Short-term wholesale funding (5) Liquidity portfolio (6) Group...

  • Page 4
    ...range of banking products and related financial services to the personal market. We serve customers through the RBS and NatWest networks of branches and ATMs, and also through telephone and internet channels. UK Corporate We are a leading provider of banking, finance and risk management services to...

  • Page 5
    ...had been the Global Banking & Markets corporate banking business and the international elements of what had been Global Transaction Services. Return on equity (%) Cost:income ratio (%) Loan:deposit ratio (%) Return on equity (%) Cost:income ratio (%) Loan:deposit ratio (%) 2010 2011 17 8 56...

  • Page 6
    ..., we have made six statements about how we aspire to do business. We do not always match our aspirations but these are the standards we set ourselves. These relate to: our customers, our people, our reputation, the security of our environment, the risks we take, and our finances.  RBS Group 2011

  • Page 7
    ... engaged member of the community We conduct our business in a sustainable manner We deliver essential customer services and critical business processes at all times Security We operate in a secure environment We protect access to our premises, systems and data We operate our processes, systems and...

  • Page 8
    ... customers to: sophisticated and complex products through financial markets. We also provide international cash management, which includes services such as credit card processing for retailers, payments services and international cash transfer. Helping customers raise money At its simplest, banking...

  • Page 9
    ...Providing direct investment opportunities in financial markets Cash management and payment systems Helping clients raise money in bond markets Large corporate and interbank lending Trade finance Hedging exchange rate risk Inï¬,ation and interest rate hedging Investment research RBS Group 2011...

  • Page 10
    ...Access Direct. UK Retail Our international capabilities support UK Corporate clients to do business internationally using Global Account. Markets Ulster Bank International Banking Wealth Business Services Provides a diverse range of services to the customer-facing operations of the Group. UK...

  • Page 11
    ...The need to address the legacy of losses in a number of businesses means that the Group is not yet profitable, although in 2011 our core businesses earned a profit of £6 billion and a return on tangible equity of 10.5%. During 2011, we faced weak and deteriorating economic and market conditions. We...

  • Page 12
    ...stable overall. Service standards are generally up. Lending support across the UK business substantially exceeds our natural customer market share. • rebuilt its financial resilience. Core Tier 1 ratio increased to 10.6%, total assets reduced by £712 billion from peak levels, short-term wholesale...

  • Page 13
    ...We are building the capacity of our business to earn its cost of capital and produce solid returns as external conditions allow. RBS is an enduring financial institution playing a key part in our markets and communities. We support others. We depend on the support of customers and our communities in...

  • Page 14
    ... further changes, including selling businesses? RBS wholesale businesses are a vital part of the Group. They are important contributors in their own right. They are linked with our other banking businesses closely in a way that helps us to serve all our customers better, makes us more profitable as...

  • Page 15
    ...system. 10.7% 10.6% >8% 2010 2011 >10% Loan:deposit ratio We want to put our balance sheet on a more secure footing by lending only as much as we have in deposits. 118% 108% c.100% 2010 2011 c.100% Short-term (3) wholesale funding We want to reduce our reliance on short-term money market...

  • Page 16
    ...with each banking business self-funding (1:1 loan:deposit ratio) Reduced balance sheet scale Continue to de-risk and shrink the Group's Non-Core balance sheet. Careful control of future asset growth to support Core customers profitably. Funding programme Limit over-reliance on wholesale markets to...

  • Page 17
    ...the year. Non-Core's funded balance sheet has reduced by 64% from the December 2008 portfolio of £258 billion. Our Tier 1 leverage ratio increased slightly to 16.9% in 2011 from 16.8% in 2010, below our medium-term target. We significantly improved our Group loan-to-deposit ratio to 108% by the end...

  • Page 18
    ... the value of the incomes generated in the country, an important distinction when there is a large foreign-owned sector that remits profits overseas. Unemployment averaged more than 14%. House prices dropped to a point where they were close to 50% below their peak level at the year's end. Looming...

  • Page 19
    ...the Group's business strategy to the way we set risk appetite and manage risk in our business. This is how we bring the Strategic Plan to life in our management of risk. Strategic risk objectives Key risk appetite measures Key frameworks and limits Day-to-day risk management RBS Group 2011 1

  • Page 20
    ... of the Group's credit portfolio that are directly or indirectly linked to the country in question. Market risk The risk arising from changes in interest rates, exchange rates, credit spreads, equity prices and risk related factors such as market volatilities. The risk of financial loss through...

  • Page 21
    Divisional review Contents 20 21 22 23 24 25 26 27 28 29 UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Global Banking & Markets RBS Insurance Business Services and Central Functions Non-Core Division RBS Group 2011 19

  • Page 22
    ...share of the stock of outstanding mortgages. Customer deposits increased by 6%, outperforming market deposit growth of only 3%. Savings balances grew by 9%, with 1.5 million accounts opened. Our loan:deposit ratio was 106% compared with 110% in 2010. • While improvements to our service processes...

  • Page 23
    ... of new loans available through our Franchise Fund; • gave businesses access to £1 billion in the fourth quarter through Lombard's UK Capital Expenditure Fund; and • led the league tables in debt capital markets and loan markets in deals done for larger corporates. In February 2010, we signed...

  • Page 24
    ... Rory Tapner Chief Executive, Wealth 2011 346 (25) 321 30.9 18.7 2010 322 (18) 304 33.9 18.9 Operating profit (£m) Assets under management, excluding deposits (£bn) Return on equity (%) Serving customers well Our Wealth business is founded on good advice and high levels of service. That is...

  • Page 25
    ... 2010 1,097 (9) 1,088 42.8 Operating profit (£m) Return on equity (%) Serving customers well Global Transaction Services (GTS) enables customers to make and receive payments, manage their cash and liquidity, and to trade internationally. We process around 4.3 billion worldwide payments per year...

  • Page 26
    ... customers access to all the accounts they have on Anytime Banking, transfer funds between their accounts and find the nearest branch or ATM. 65,000 customers have downloaded the iPhone app to date. Our free text message alert service allows our customers to keep track of their money, 24 RBS Group...

  • Page 27
    ... credit rating from A- to A in late November. • Citizens Financial Group grew demand • deposits in 2011 while reducing higher-cost term deposits. We have increased the number of deposit customers who hold loan products for ten consecutive quarters. Building sustainable value Operating profit...

  • Page 28
    ...of Global Transaction Services to create a Markets business and an International Banking unit. We will continue to offer world-class debt financing, transaction services and risk management, while seeking to reduce our use of wholesale funding and making our capital work harder to improve our return...

  • Page 29
    ... review RBS Insurance Performance highlights Net premium income (£m) Net claims (£m) Paul Geddes Chief Executive, RBS Insurance 2011 3,969 (2,772) 454 100 10.3 2010 4,311 (3,932) (295) 121 (6.8) Operating profit/(loss) (£m) Combined operating ratio (%) Return on equity (%) Serving customers...

  • Page 30
    ... to London's 2012 Olympic Park - was an emblem of what we do best. It's the first branch with our new modular, sustainable design and includes helpful technology such as a 'Select A Service' system that directs customers to get the right solution first time, reducing waiting times and increasing...

  • Page 31
    ... 2010 (29) (5,476) (5,505) 153.7 Operating loss (£m) Risk-weighted assets (£bn) Non-Core Division is central to the Group's Strategic Plan. We are the primary vehicle for reducing risk and the size of the balance sheet. Non-Core allows the rest of RBS to focus on our strong customer franchises...

  • Page 32
    ...GSC reviews sustainability strategy, values and policy. The Committee is supported by the Group Sustainability Forum, a network of senior sustainability managers from across the organisation. This forum is responsible for driving actions agreed at the GSC. Our stakeholder engagement programme allows...

  • Page 33
    ...also invested in a new fraud profiling system to help us detect fraud more easily to minimise the losses for our customers. Internally, we also developed our global safety and health modules in 2011 and improved our internal service, Lifematters, which helps employees access the resource and support...

  • Page 34
    ... foreign currency exposures 133 - Equity risk 134 Risk management 134 - Credit risk 208 - Country risk 229 - Market risk 236 - Insurance risk 236 - Operational risk 239 - Compliance risk 244 - Reputational risk 244 - Business risk 245 - Pension risk 247 Asset Protection Scheme 32 RBS Group 2011

  • Page 35
    ... through those offices in the UK specifically organised to service international banking transactions and transactions conducted through offices outside the UK. The geographic analysis in the Business Review, including the average balance sheet and interest rates, changes in net interest income and...

  • Page 36
    ...; interest rate hedge adjustments on impaired available-for-sale Greek government bonds; write-down of goodwill and other intangible assets; and RFS Holdings minority interest (RFS MI). x x x x x x movements in fair value of own debt; Asset Protection Scheme; Payment Protection Insurance costs...

  • Page 37
    ...looking statements relating, but not limited to: the Group's restructuring plans, divestments, capitalisation, portfolios, net interest margin, capital ratios, liquidity, risk weighted assets (RWAs), return on equity (ROE), profitability, cost:income ratios, leverage and loan:deposit ratios, funding...

  • Page 38
    Business review Description of business Introduction The Royal Bank of Scotland Group plc is the holding company of a large global banking and financial services group. Headquartered in Edinburgh, the Group operates in the United Kingdom, the United States and internationally through its principal ...

  • Page 39
    ... - Ulster Bank - International Banking Markets RBS Insurance Group Centre Core Non-Core x The 'Markets' business will maintain its focus on fixed income, with strong positions in debt capital raising, securitisation, risk management, foreign exchange and rates. It will serve the corporate and...

  • Page 40
    ... active and potentially seeking to build their platforms by acquiring businesses made available through restructuring of incumbents. The Group distributes life assurance products to banking customers in competition with independent advisors and life assurance companies. In the UK credit card market...

  • Page 41
    ... affect the Group's financial condition. Furthermore, the Group's borrowing costs and its access to the debt capital markets and other sources of liquidity depend significantly on its and the UK Government's credit ratings. The Independent Commission on Banking has published its final report on...

  • Page 42
    ...252 (2,647) (3,607) 52% (6.3p) - at 31 December Funded balance sheet (5) Total assets Loans and advances to customers Deposits Owners' equity Risk asset ratios - Core Tier 1 - Tier 1 - Total Managed and Statutory 2011 2010 £m £m 2009 Managed £m Statutory £m 977,249 1,506,867 515,606 611,759...

  • Page 43
    Summary consolidated income statement for the year ended 31 December 2011 In the income statement on a managed basis set out below, movements in the fair value of own debt, Asset Protection Scheme, Payment Protection Insurance costs, sovereign debt impairment, amortisation of purchased intangible ...

  • Page 44
    ... income statement for the year ended 31 December 2011 continued Managed 2010 £m Statutory 2010 £m 2011 £m 2009 £m 2011 £m 2009 £m Basic loss per ordinary and B share from continuing operations Fair value of own debt Asset Protection Scheme Payment Protection Insurance costs Sovereign debt...

  • Page 45
    ...553 million in 2010 on a liability management exercise to redeem a number of Tier 1 and upper Tier 2 securities. The Finance Act 2011 introduced an annual bank levy in the UK. The levy is based on the total chargeable equity and liabilities as reported in the balance sheet at the end of a chargeable...

  • Page 46
    ... losses on the sales of other businesses undertaken as part of the Group's Strategic Plan. The Asset Protection Scheme is accounted for as a credit derivative, and movements in the fair value of the contract are taken as non-operating items. The charge of £1,550 million in 2010 reflects improving...

  • Page 47
    ... fair value of the Asset Protection Scheme resulting in a £1,550 million charge and gain on redemption of own debt of £553 million (2009 - £3,790 million). Excluding these items, non-interest income was up 18% primarily reflecting an increase in income from trading activities. Operating expenses...

  • Page 48
    ...free funds Net interest margin of the banking business (7) Yields, spreads and margins of the banking business Gross yield (5) - Group - UK - Overseas Interest spread (6) - Group - UK - Overseas Net interest margin (7) - Group - UK - Overseas The Royal Bank of Scotland plc base rate (average) London...

  • Page 49
    ...savings deposits - UK - Overseas Customer accounts: other time deposits - UK - Overseas Debt securities in issue - UK - Overseas Subordinated liabilities - UK - Overseas Internal funding of trading business - UK - Overseas Interest-bearing liabilities - UK - Overseas - banking business (1,2,4) Total...

  • Page 50
    ... banks - UK - Overseas Customer accounts: demand deposits - UK - Overseas Customer accounts: savings deposits - UK - Overseas Customer accounts: other time deposits - UK - Overseas Debt securities in issue - UK - Overseas Subordinated liabilities - UK - Overseas Internal funding of trading business...

  • Page 51
    ... banks - UK - Overseas Customer accounts: demand deposits - UK - Overseas Customer accounts: savings deposits - UK - Overseas Customer accounts: other time deposits - UK - Overseas Debt securities in issue - UK - Overseas Subordinated liabilities - UK - Overseas Internal funding of trading business...

  • Page 52
    ... to overseas operations Liabilities Deposits by banks Customer accounts: demand deposits Customer accounts: savings deposits Customer accounts: other time deposits Debt securities in issue Subordinated liabilities Internal funding of trading business Interest-bearing liabilities Total interest...

  • Page 53
    ... by banks UK Overseas Customer accounts: demand deposits UK Overseas Customer accounts: savings deposits UK Overseas Customer accounts: other time deposits UK Overseas Debt securities in issue UK Overseas Subordinated liabilities UK Overseas Internal funding of trading business UK Overseas Total...

  • Page 54
    ... by banks UK Overseas Customer accounts: demand deposits UK Overseas Customer accounts: savings deposits UK Overseas Customer accounts: other time deposits UK Overseas Debt securities in issue UK Overseas Subordinated liabilities UK Overseas Internal funding of trading business UK Overseas Total...

  • Page 55
    ...interest income 2011 £m Managed (1) 2010 £m 2009 £m 2011 £m Statutory 2010 £m 2009 £m Fees and commissions receivable Fees and commissions payable Income from trading activities - excluding Asset Protection Scheme - Asset Protection Scheme Gain on redemption of own debt Other operating income...

  • Page 56
    ... fair value of securities and investment properties. Insurance net premium income fell by £138 million to £5,128 million principally reflecting lower general insurance premiums, driven by a managed reduction in the risk of the UK motor book, largely offset by price increases. 54 RBS Group 2011

  • Page 57
    ... £3 billion by the end of 2011. 2010 compared with 2009 - managed The main driver of a 4% decrease in operating expenses is the recognition of benefits from the Group-wide efficiency programme. The programme continues to deliver material savings which have been funding investments to strengthen our...

  • Page 58
    ... Staff costs, excluding pension schemes curtailment gains, fell by £322 million to £9,671 million, driven by savings in Global Banking & Markets, UK Retail and Non-Core partially offset by higher costs in Group Centre. Premises and equipment costs fell by 7% in the year to £2,402 million largely...

  • Page 59
    ... a result of the number of restructuring projects being undertaken. Accruals in relation to restructuring costs are set out below. At 1 January 2011 £m Currency translation adjustments £m Charge to income statement £m Utilised during the year £m At 31 December 2011 £m Staff costs - redundancy...

  • Page 60
    ...£m 2011 £m Statutory 2010 £m 2009 £m New impairment losses Less: recoveries of amounts previously written-off Charge to income statement Comprising: Loan impairment losses Securities - sovereign debt impairment - interest rate hedge adjustments on impaired available-for-sale Greek government...

  • Page 61
    ... rates UK tax rate change - deferred tax impact Unrecognised timing differences Non-deductible goodwill impairment Items not allowed for tax - losses on strategic disposals and write-downs - UK Bank levy - employee share schemes - other disallowable items Non-taxable items - gain on sale of Global...

  • Page 62
    ...UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Retail & Commercial Global Banking & Markets RBS Insurance Central items Core Non-Core Operating profit/(loss) Fair value of own debt Asset Protection Scheme Payment Protection Insurance costs Sovereign debt...

  • Page 63
    ...69 1.76 Risk-weighted assets by division UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Retail & Commercial Global Banking & Markets Other Core Non-Core Group before benefit of Asset Protection Scheme Benefit of Asset Protection Scheme Group before RFS...

  • Page 64
    ... continued Employee numbers at 31 December (full time equivalents in continuing operations rounded to the nearest hundred) 2011 2010 2009 UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Retail & Commercial Global Banking & Markets RBS Insurance Central...

  • Page 65
    ... ratios Return on equity (1) Net interest margin Cost:income ratio Adjusted cost:income ratio (2) Capital and balance sheet Loans and advances to customers (gross) (3) - mortgages - personal - cards Customer deposits (excluding bancassurance) (3) Assets under management (excluding deposits) Risk...

  • Page 66
    ...lending while at the same time building customer deposits, thereby reducing the Group's reliance on wholesale funding. Loans and advances to customers grew 2%, with a change in mix from unsecured to secured as the Group actively sought to improve its risk profile. Mortgage balances grew by 5%, while...

  • Page 67
    ... lending while at the same time building customer deposits, thereby reducing the Group's reliance on wholesale funding. Loans and advances to customers grew 5%, with a change in mix from unsecured to secured as the Group actively sought to improve its risk profile. Mortgage balances grew by 9% while...

  • Page 68
    Business review UK Corporate continued 2011 £m 2010 £m 2009 £m Net interest income Net fees and commissions Other non-interest income Non-interest income Total income Direct expenses - staff - other Indirect expenses Operating profit before impairment losses Impairment losses Operating ...

  • Page 69
    ... businesses access to special interest rate and fee free lending products; x answering over 4,000 calls on the Start-up Hotline, offering free advice and a complementary business plan review service; and x supporting more debt capital and loan market deals for larger corporates than any other bank...

  • Page 70
    ...-interest income Total income Direct expenses - staff - other Indirect expenses Operating profit before impairment losses Impairment losses Operating profit Analysis of income Private banking Investments Total income Performance ratios Return on equity (1) Net interest margin Cost:income ratio 718...

  • Page 71
    ... has been a significant year for the Coutts businesses from a strategic perspective. In Q1 2011, a new divisional strategy was defined with the execution of early changes already making an impact. Key strategic changes in 2011 included: 2011 compared with 2010 Operating profit increased by 6% on...

  • Page 72
    Business review continued Global Transaction Services 2011 £m 2010 £m 2009 £m Net interest income Non-interest income Total income Direct expenses - staff - other Indirect expenses Operating profit before impairment losses Impairment losses Operating profit Analysis of income by product ...

  • Page 73
    ...companies, both in the UK and overseas, to do more business internationally. This support included delivering a series of UK Government-backed 'Doing Business in Asia' events. During the year, GTS invested in improving existing products and services and also in developing new ones. To help corporate...

  • Page 74
    Business review Ulster Bank continued 2011 £m 2010 £m 2009 £m Net interest income Net fees and commissions Other non-interest income Non-interest income Total income Direct expenses - staff - other Indirect expenses Operating profit before impairment losses Impairment losses Operating loss ...

  • Page 75
    ... debt flow and further fall in asset prices. Despite intense competition, retail and small business deposit balances have grown strongly throughout 2011, driven by the benefits of a focused deposit gathering strategy. However, total customer deposit balances fell by 4% in constant currency terms...

  • Page 76
    ..., lower incomes and increased taxation have driven mortgage impairment increases. Risk-weighted assets have increased due to deteriorating credit risk metrics. Customer numbers increased by 3% during 2010, with a strong performance in current and savings accounts switchers. 74 RBS Group 2011

  • Page 77
    ...losses Operating profit/(loss) Average exchange rate - US$/£ Analysis of income by product Mortgages and home equity Personal lending and cards Retail deposits Commercial lending Commercial deposits Other Total income Analysis of impairments by sector Residential mortgages Home equity Corporate and...

  • Page 78
    Business review continued US Retail & Commercial continued 2011 US$bn 2010 US$bn 2009 US$bn 2011 £bn 2010 £bn 2009 £bn Capital and balance sheet Total third party assets Loans and advances to customers (gross) - residential mortgages - home equity - corporate and commercial - other consumer ...

  • Page 79
    ... transaction fees, partially offset by the impact of legislative changes on debit card and deposit fees. Excluding the defined benefit plan credit of $113 million in Q2 2010, total expenses were down $31 million, or 1%, due to a number of factors including lower Federal Deposit Insurance Corporation...

  • Page 80
    Business review Global Banking & Markets continued 2011 £m 2010 £m 2009 £m Net interest income from banking activities Net fees and commissions receivable Income from trading activities Other operating income (net of related funding costs) Non-interest income Total income Direct expenses - ...

  • Page 81
    ... see the reorganisation of RBS's wholesale businesses into 'Markets' and 'International Banking' and the exit and downsizing of selected activities. The changes will ensure the wholesale businesses continue to deliver against the Group's strategy. 2011 compared with 2010 Operating profit fell by 54...

  • Page 82
    Business review RBS Insurance continued 2011 £m 2010 £m 2009 £m Earned premiums Reinsurers' share Net premium income Fees and commissions Instalment income Other income Total income Net claims Underwriting profit Staff expenses Other expenses Total direct expenses Indirect expenses Technical...

  • Page 83
    ... business. (2) Total in-force policies include travel and creditor policies sold through RBS Group. These comprise travel policies included in bank accounts e.g. Royalties Gold Account, and creditor policies sold with bank products including mortgage, loan and card payment protection. (3) Return...

  • Page 84
    ... of management's transformation plan - to return to profit in 2011. The full year combined operating ratio improved to 100% (2010 - 121%) with a full year return on equity of 10.3% compared with a negative return of 6.8% in 2010. The second phase of the RBS Insurance transformation plan, to build...

  • Page 85
    ... broker. 2010 compared with 2009 RBS Insurance has embarked on a significant programme of investment designed to achieve a substantial lift in operational and financial performance, ahead of the planned divestment of the business, with a current target date of 2012. This programme encompasses the...

  • Page 86
    ... to operating divisions, based on direct service usage, requirement for market funding and other appropriate drivers where services span more than one division. Residual unallocated items relate to volatile corporate items that do not naturally reside within a division. 2011 compared with 2010...

  • Page 87
    ... Impairment losses Operating loss Analysis of income/(loss) by business Banking & portfolios International businesses Markets Total income/(loss) Loss from trading activities Monoline exposures Credit derivative product companies Asset-backed products (2) Other credit exotics Equities Banking book...

  • Page 88
    Business review Non-Core continued continued 2011 2010 2009 Performance ratios Net interest margin Cost:income ratio Adjusted cost:income ratio 0.64% 107% 128% £bn 1.16% 76% 101% £bn 0.69% (100%) (80%) £bn Capital and balance sheet Total third party assets (excluding derivatives) (1) ...

  • Page 89
    ... Property and construction Transport Telecoms, media and technology Banking and financial institutions Other Total Global Banking & Markets Other Wealth Global Transaction Services Central items Total Other Total impairment losses 2011 £m 2010 £m 2009 £m 5 (27) (22) 5 8 13 6 47 53 76 224...

  • Page 90
    ... Telecoms, media and technology Banking and financial institutions Other Total Global Banking & Markets Other Wealth Global Transaction Services RBS Insurance Central items Total Other Gross loans and advances to customers (excluding reverse repurchase agreements) 2011 £bn 2010 £bn 2009 £bn...

  • Page 91
    ... include the sale of RBS Aviation Capital for £4.7 billion, which was signed in January 2012. Since the division was formed in 2009, the reduction totals £164 billion, or 64%. By the end of 2011, the Non-Core funded balance sheet equated to less than 10% of the Group funded balance sheet compared...

  • Page 92
    ... borrowing Loans and advances to customers Debt securities Equity shares Settlement balances Derivatives Intangible assets Property, plant and equipment Deferred tax Prepayments, accrued income and other assets Assets of disposal groups Total assets Liabilities Bank deposits Repurchase agreements...

  • Page 93
    ... deposits were down £14.4 billion, 3%, to £414.1 billion, reflecting the transfer to disposal groups of £21.8 billion of customer accounts relating to the UK branch-based businesses. This was partly offset by the net effect of growth in Global Transaction Services £2.7 billion, UK Corporate...

  • Page 94
    ...with a reduction in the level of debt securities and mark-to-market value of derivatives in Global Banking & Markets. Cash and balances at central banks were up £5.5 billion, 11%, to £57.0 billion due to an improvement in the Group's structural liquidity position during 2010. Loans and advances to...

  • Page 95
    ... reduction in the level of debt securities and the mark-to-market value of derivatives. Cash and balances at central banks were up £4.8 billion, 9%, to £57.0 billion principally due to an improvement in the Group's structural liquidity position during 2010. Loans and advances to banks increased by...

  • Page 96
    Business review Cash flow continued 2011 £m 2010 £m 2009 £m Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities Effects of exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents 3,...

  • Page 97
    ... by international agreement, the RAR should be not less than 8% with a Tier 1 component of not less than 4%. At 31 December 2011, the Group's total RAR was 13.8% (2010 - 14.0%) and the Tier 1 RAR was 13.0% (2010 12.9%). For further information refer to Balance sheet management: Capital management on...

  • Page 98
    ...tax; bank levy; gains on pensions curtailment; interest rate hedge adjustments on available-for-sale Greek government bonds; write-down of goodwill and other intangible assets; and RFS Holdings minority interest (RFS MI). Income statement for the year ended 31 December 2011 Managed £m Reallocation...

  • Page 99
    ... statement for the year ended 31 December 2010 Reallocation of one-off items £m Managed £m Statutory £m Net interest income Non-interest income (excluding insurance net premium income) Insurance net premium income Non-interest income Total income Operating expenses Profit before insurance...

  • Page 100
    ... continued Income statement for the year ended 31 December 2009 Reallocation of one-off items £m Managed £m Statutory £m Net interest income Non-interest income (excluding insurance net premium income) Insurance net premium income Non-interest income Total income Operating expenses Profit...

  • Page 101
    ... borrowing Loans and advances to customers Debt securities Equity shares Settlement balances Derivatives Intangible assets Property, plant and equipment Deferred tax Prepayments, accrued income and other assets Assets of disposal groups Total assets Liabilities Bank deposits Repurchase agreements...

  • Page 102
    ...2011, the roles and responsibilities of the Executive Risk Forum and its supporting committees were reviewed and more clearly defined (see pages 104 to 106). The Group has launched a common set of values for the risk community that impact directly on behaviours and help to engender a risk management...

  • Page 103
    ... partnership between the risk, strategy, treasury and finance functions that facilitates a broader internal debate on key issues; and clear accountability by each division (and business unit) for the level of risk it is prepared to take to achieve its business objectives. x x meet its...

  • Page 104
    ...environment. Internal stress tests The Group's stress testing framework is designed to embed stress testing as a key risk management technique into mainstream risk reporting, capital planning and business processes at both Group and divisional levels. The Executive Risk Forum (see Risk governance on...

  • Page 105
    ... the Group Asset and Liability Management Committee. (2) The following specialist sub-committees report directly to the Group Risk Committee: Global Markets Risk Committee, Group Country Risk Committee, Group Models Committee, Group Credit Risk Committee and Operational Risk Executive Committee. In...

  • Page 106
    Business review Risk and balance sheet management continued Introduction*: Risk governance continued The key risk responsibilities of each of these committees as well as their membership are set out in the table below. Further information on the Group Board and Board Committees is available on page ...

  • Page 107
    ... Group balance sheet risks in executing its chosen business strategy. Group Finance Director Group Treasurer Chief Executive Officers of divisions Head of Restructuring and Risk Key Group Finance function heads Global Head of Markets Group Risk Committee Deputy Chief Risk Officer The Group Risk...

  • Page 108
    Business review Risk and balance sheet management continued Introduction*: Risk governance continued Board/Committee Capital and Stress Testing Committee Risk focus Membership Group Finance Director The Capital and Stress Testing Committee is a subKey Group Finance function heads committee of the ...

  • Page 109
    ...members. This resulted in an impairment charge recognised by the Group in 2011 in respect of available-for-sale Greek government bonds. In response, the Group further strengthened its country risk appetite setting and risk management systems during the year and brought a number of advanced countries...

  • Page 110
    ...risk policy statements set out its qualitative tolerance for market risk. They define the governance, responsibilities and requirements for the identification, measurement, analysis, management and communication of the market risk arising from the Group's trading and nontrading investment activities...

  • Page 111
    ... address and manage them. and economic conditions. Business risk is incorporated within the Group's risk appetite target for earnings volatility that was set in 2011. Refer to page 244. The risk that the Group will have to make additional contributions to its defined benefit pension schemes. Funding...

  • Page 112
    ... priorities and balance sheet and funding metrics. Economic profit is also planned and measured for each division during the annual planning process. It is calculated by deducting the cost of equity utilised in the particular business from its operating profit and measures the value added over...

  • Page 113
    Capital adequacy* The Group's RWAs and risk asset ratios, calculated in accordance with FSA definitions, are set out below. Statutory 2010 £bn Proportional 2009 £bn Risk-weighted assets by risk Credit risk Counterparty risk Market risk Operational risk Asset Protection Scheme relief 2011 £bn ...

  • Page 114
    Business review Risk and balance sheet management continued Balance sheet management: Capital management continued Capital resources The Group's regulatory capital resources in accordance with FSA definitions were as follows: Statutory 2010 £m Proportional* 2009 £m Shareholders' equity (excluding...

  • Page 115
    ...in fair value of own debt Foreign currency reserves Decrease in non-controlling interests Decrease in capital deductions including APS first loss Other movements At end of the year 2011 £m 49,604 (3,449) (363) (485) 1,128 (94) 46,341 Note: (1) Total capital includes certain instruments issued by...

  • Page 116
    ... are set out below: Credit risk £bn Counterparty risk £bn Market risk £bn Operational risk £bn Gross RWAs £bn APS relief £bn Net RWAs £bn 2011 UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Retail & Commercial Global Banking & Markets Other...

  • Page 117
    ...the end of 2013, of which circa £10 billion will apply in 2012. The Group is managing the changes to capital requirements from new regulation and model changes and the resulting impact on the common equity Tier 1 ratio, focusing on risk reduction and deleveraging. This is principally being achieved...

  • Page 118
    ... short-term money markets, repurchase agreement markets and term debt investors through its secured and unsecured funding programmes. Diversity in funding is provided by its active role in the money markets, along with access to global capital flows through GBM's international client base. The Group...

  • Page 119
    ... for each business as well as the major operating subsidiaries. A variety of firmspecific and market-related scenarios are used at the consolidated level and in individual countries. These scenarios include assumptions about significant changes in key funding sources, credit ratings, contingent uses...

  • Page 120
    Business review Risk and balance sheet management continued Balance sheet management: Liquidity and funding risk continued Funding sources The table below shows the Group's primary funding sources including deposits in disposal groups and excluding repurchase agreements. 2011 £m 2010 £m 2009 £m ...

  • Page 121
    ....0 Key point x Debt securities in issue with a maturity of less than one year declined £25.1 billion from £94.0 billion at 31 December 2010 to £68.9 billion at 31 December 2011, largely due to the maturity of £20.1 billion of notes issued under the UK Government's Credit Guarantee Scheme (CGS...

  • Page 122
    Business review Risk and balance sheet management continued Balance sheet management: Liquidity and funding risk continued Long-term debt issuances The table below shows debt securities issued by the Group with an original maturity of one year or more. The Group also executes other long-term funding...

  • Page 123
    ... years. x The Group has issued approximately £2.8 billion since year end, including a £1 billion public covered bond issuance and a US$1.2 billion securitisation. Secured funding The Group has access to secured funding markets through own-asset securitisation and covered bond funding programmes...

  • Page 124
    ... operating conditions. Two key structural ratios are described below. Loan to deposit ratio and funding gap The table below shows the Group's loan:deposit ratio and customer funding gap, including disposal groups. Loan:deposit ratio Group % Core % Customer funding gap Group £bn 2011 2010 2009 Note...

  • Page 125
    ...Total liabilities and equity Cash Inter-bank lending Debt securities > 1 year - central and local governments AAA to AA- other eligible bonds - other bonds Debt securities < 1 year Derivatives Reverse repurchase agreements Customer loans and advances > 1 year - residential mortgages - other Customer...

  • Page 126
    ...an SPE. Securities may then be issued by the SPE to investors, on the back of the credit protection sold to the Group by the SPE. Residential and commercial mortgages and credit card receivables form the types of assets generally included in cash securitisations, while corporate loans and commercial...

  • Page 127
    ... 2011 was 42.6 days (2010 - 69.4 days; 2009 - 58.4 days). The maturity of the commercial paper issued by the Group's conduits is managed to mitigate the short-term contingent liquidity risk of providing back-up facilities. The Group's limits sanctioned for such liquidity facilities in 2011 totalled...

  • Page 128
    ... (2010 - £26 billion) to access the Bank of England's open market operations for contingent funding purposes. This conduit is not included above, or in the tables on pages 126 and 127. Collateral analysis, profile, credit ratings and weighted average lives relating to the Group's consolidated...

  • Page 129
    CP funded assets Credit ratings (S&P equivalent) UK £m Europe £m US £m RoW £m Total £m AAA £m AA £m A £m BBB £m Below BBB £m 2011 Auto loans Corporate loans Credit card receivables Trade receivables Student loans Consumer loans Mortgages - prime - non-conforming - commercial Other 518 -...

  • Page 130
    ... months £m 3-12 months £m 1-3 years £m 3-5 years £m 5-10 years £m 10-20 years £m Assets by contractual maturity Cash and balances at central banks Loans and advances to banks Debt securities Settlement balances Other financial assets Total maturing assets Loans and advances to customers...

  • Page 131
    ... months £m 3-12 months £m 1-3 years £m 3-5 years £m 5-10 years £m 10-20 years £m Assets by contractual maturity Cash and balances at central banks Loans and advances to banks Debt securities Settlement balances Other financial assets Total maturing assets Loans and advances to customers...

  • Page 132
    ... 0-3 months £m 3-12 months £m 1-3 years £m 3-5 years £m 5-10 years £m 10-20 years £m Assets by contractual maturity Cash and balances at central banks Loans and advances to banks Debt securities Settlement balances Other financial assets Total maturing assets Loans and advances to customers...

  • Page 133
    ... used to mitigate risks which are accounted for on an accrual basis, as well as non-interest bearing balance sheet items, which are not subjected to fair value accounting. The Group provides financial products to satisfy a variety of customer requirements. Loans and deposits are designed to...

  • Page 134
    ... business assumptions as rates rise. The impact of the steepening and flattening scenarios is largely driven by the investment of net free reserves. x The reported sensitivity will vary over time due to a number of factors such as market conditions and strategic changes to the balance sheet...

  • Page 135
    ... or clearing house, or to support venture capital transactions or customer restructuring arrangements. The Group is exposed to market risk on these banking book equity positions because they are measured at fair value. Fair values are based on available market prices where possible. In the event...

  • Page 136
    ...single name and country. These are supported by a suite of Group-wide and divisional policies, setting out the risk parameters within which business units may operate. Information on the Group's credit portfolios is reported to the Group Board by way of the divisional and Group-level risk committees...

  • Page 137
    ...to address certain lines of business across the Group, where the nature of credit risk incurred could represent a concentration or a specific/heightened risk in some other form. For example, in response to volatile conditions in the syndicated loan, fixed income and equities markets during 2011, the...

  • Page 138
    ...reviews will be provided to the Executive Risk Forum and to the Board Risk Committee on a regular basis in support of the selfcertification that Group Credit Risk is obliged to complete under the Group Policy Framework (refer to Operational risk on page 236 to 239). Problem debt management The Group...

  • Page 139
    ... will be a function of the division's specific country and sector appetite, the key credit metrics of the customer, the market environment and the loan structure/security. Only those concessions deemed to be outside current market norms are reported as restructurings in the discussions below. Other...

  • Page 140
    Business review Risk and balance sheet management continued Risk management: Credit risk continued Problem debt management continued The wholesale restructured loan data presented in the tables below include only those arrangements that achieved legal completion during 2011 and that individually ...

  • Page 141
    ..., a missed payment on their loan, or a balance that is in excess of the agreed credit limit. Additionally, in UK Retail and Ulster Bank, a dedicated support team aims to identify and help customers who may be facing financial difficulty but who are current with their payments. Within collections...

  • Page 142
    Business review Risk and balance sheet management continued Risk management: Credit risk continued Problem debt management continued The mortgage arrears information for retail accounts in forbearance and related provision arrangements are shown in the table below: No missed payments 1-3 months in ...

  • Page 143
    ... credit risk. Netting of debtor and creditor balances is undertaken in accordance with relevant regulatory and internal policies. Exposure on over-the-counter derivative and secured financing transactions is further mitigated by the exchange of financial collateral and the use of market standard...

  • Page 144
    ...'s management and collection processes. The value of the receivables offered as collateral will typically be adjusted to exclude receivables that are past their due dates. x x Corporate risk elements in lending and potential problem loans (excluding commercial real estate) Secured Unsecured 2011...

  • Page 145
    ...for the Group's residential mortgage portfolio split between performing and non-performing and calculated on a value basis. Loan balances are as at the end of the year whereas property values are calculated using the appropriate index at 30 September 2011. 2011 Performing Non-performing £m £m 2010...

  • Page 146
    ... otherwise stated, the data reflect the effect of credit mitigation techniques. Divisional analysis of credit risk assets UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Retail & Commercial Global Banking & Markets Other Core Non-Core 2011 £m 2010...

  • Page 147
    ... the markets business and legal defeasance of structured finance transactions. Asset quality Using the probability of default models described previously, customers are assigned credit grades and scores, which are used for internal management reporting across portfolios, including a Group level...

  • Page 148
    ...£m credit risk assets 2010 AQ10 % of divisional £m credit risk assets 2009 AQ10 % of divisional £m credit risk assets AQ10 credit risk assets by division UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Retail & Commercial Global Banking & Markets Core...

  • Page 149
    ...Pacific £m Latin America £m 2011 UK £m Other (1) £m Total £m Core £m Non-Core £m Personal Banks Other financial institutions Sovereign (2) Property Natural resources Manufacturing Transport (3) Retail and leisure Telecommunications, media and technology Business services 126,945 4,720...

  • Page 150
    ... Country risk section on page 208. x (iii) (iv) x The Group's sovereign portfolio comprises central governments, central banks and sub-sovereigns such as local authorities, primarily in the Group's key markets in the UK, Western Europe and the US. Exposure predominantly comprises cash balances...

  • Page 151
    ... new build vessels into poor markets. A key protection for the Group is the minimum security covenant. This covenant is tested each quarter on an individual vessel basis to ensure that prompt remedial action is taken if values fall significantly below agreed loan coverage ratios. At 31 December 2011...

  • Page 152
    ... excludes rate risk management and contingent obligations. 2011 Development £m 2010 Development £m 2009 Development £m By division Core UK Corporate Ulster Bank US Retail & Commercial Global Banking & Markets Investment £m Total £m Investment £m Total £m Investment £m Total £m 25...

  • Page 153
    ... 2009 to the end of 2011. x x The UK portfolio is focused on London and the South East (44%), with the remainder well spread across the UK regions. Short-term lending to property developers without sufficient pre-let revenue at origination to support investment financing after practical completion...

  • Page 154
    ... review Risk and balance sheet management continued Risk management: Credit risk continued Key credit portfolios*: Commercial real estate continued UK Corporate £m Ulster Bank £m US Retail & Commercial £m Global Banking & Markets £m Total £m Maturity profile of portfolio 2011 Core < 1 year...

  • Page 155
    ... 53% at 31 December 2011 (2010 - 44%). The reported LTV levels are based on gross loan values. The weighted average LTV for AQ10 excluding Ulster Bank is 129%. x The average interest coverage ratios (ICR) for UK Corporate (Core and Non-Core) and GBM (Non-Core) investment properties are 2.37x and...

  • Page 156
    Business review Risk and balance sheet management continued Risk management: Credit risk continued Key credit portfolios* continued Retail assets The Group's retail lending portfolio includes mortgages, credit cards, unsecured loans, auto finance and overdrafts. The majority of personal lending ...

  • Page 157
    ...the limit (2010 - 0.8%). Consistent with the way the Council of Mortgage Lenders publishes member arrears information, the 3+ months arrears rate now excludes accounts in repossession and cases with shortfalls post property sale. Key points UK Retail x The UK Retail mortgage portfolio totalled £96...

  • Page 158
    ... refers to the impairment charges in the year, net of recoveries realised in the year. Key points UK Retail x The UK personal lending portfolio, of which 99.4% is in Core businesses, comprises credit cards, unsecured loans and overdrafts, and totalled £16.0 billion at 31 December 2011 (2010...

  • Page 159
    ... (Core and Non-Core) At 31 December 2011, Ulster Bank Group accounted for 10% of the Group's total customer loans (2010 - 10%; 2009 - 10%) and 9% of the Group's Core customer loans (2010 - 9%; 2009 - 9%). Ulster Bank's financial performance continues to be overshadowed by the challenging economic...

  • Page 160
    Business review Risk and balance sheet management continued Risk management: Credit risk continued Key credit portfolios*: Ulster Bank Group (Core and Non-Core) continued Gross loans £m REIL as a % of gross loans % Provisions as a % of REIL % Provisions as a % of gross loans % Impairment charge £m...

  • Page 161
    ...higher than in 2010, with a total of 161 properties Ulster Bank is assisting customers in this difficult environment. Mortgage forbearance policies which are deployed through the ǥFlex' initiative are aimed at assisting customers in financial difficulty. At 31 December 2011, 9.1% (by value) of the...

  • Page 162
    ... review Risk and balance sheet management continued Risk management: Credit risk continued Key credit portfolios*: Ulster Bank Group (Core and Non-Core) continued Commercial real estate The commercial real estate lending portfolio for Ulster Bank Group totalled £17.1 billion at 31 December 2011...

  • Page 163
    ... Debt £m Securities Equity £m Total £m Derivatives £m Other (1) £m Total £m Netting and offset (2) £m 2011 Net £m Central and local government Finance - banks - other (3) Residential mortgages Personal lending Property Construction Manufacturing Service industries and business activities...

  • Page 164
    ... Debt £m Securities Equity £m Total Derivatives £m £m Other (1) £m Total £m Netting and offset (2) £m 2010 Net £m Central and local government Finance - banks - other (3) Residential mortgages Personal lending Property Construction Manufacturing Service industries and business activities...

  • Page 165
    ...Debt £m Securities Equity £m Total £m Derivatives £m Other (1) £m Total £m 2009 Netting and offset (2) £m Net £m Central and local government Finance - banks - other (3) Residential mortgages Personal lending Property Construction Manufacturing Service industries and business activities...

  • Page 166
    ...MI Group Note: (1) Loans and advances to banks includes £95 million of accrued interest (2010 - £36 million; 2009 - £339 million). Key points x Gross loans and advances declined by £55.2 billion during 2011 of which £19.4 billion related to the transfer to disposal groups. x Customer lending...

  • Page 167
    ... region (location of office) and sector. Loans and advances Reverse repos £m Core £m Non-Core £m Total £m Debt £m Securities Equity £m Total Derivatives £m £m Other (1) £m Total £m Netting and offset (2) £m 2011 Net £m UK Central and local government 2,130 8,012 Finance - banks 25,204...

  • Page 168
    ... £m Debt £m Securities Equity £m Total Derivatives £m £m Other (1) £m Total £m Netting and offset (2) £m 2011 Net £m Europe Central and local government Finance - banks - other (3) Residential mortgages Personal lending Property Construction Manufacturing Service industries and business...

  • Page 169
    ... £m Debt £m Securities Equity £m Total Derivatives £m £m Other (1) £m Total £m 2010 Netting and offset (2) £m Net £m UK Central and local government Finance - banks - other (3) Residential mortgages Personal lending Property Construction Manufacturing Service industries and business...

  • Page 170
    ... £m Debt £m Securities Equity £m Total Derivatives £m £m Other (1) £m Total £m Netting and offset (2) £m 2010 Net £m Europe Central and local government Finance - banks - other (3) Residential mortgages Personal lending Property Construction Manufacturing Service industries and business...

  • Page 171
    ... £m Debt £m Securities Equity £m Total Derivatives £m £m Other (1) £m Total £m 2009 Netting and offset (2) £m Net £m UK Central and local government Finance - banks - other (3) Residential mortgages Personal lending Property Construction Manufacturing Service industries and business...

  • Page 172
    Business review Risk and balance sheet management continued Risk management: Credit risk continued Balance sheet analysis: Credit concentration: Sector and geographical region continued Loans and advances Reverse repos £m Core £m Non-Core £m Total £m Debt £m Securities Equity £m Total ...

  • Page 173
    ... currencies. Government £m The table below sets out the Group's cross border exposures greater than 0.5% of the Group's total assets. None of these countries have experienced repayment difficulties that have required restructuring of outstanding debt. 2011 Banks £m Other £m Total £m Short...

  • Page 174
    ... the key drivers of default for the customer type. All credit grades across the Group map to both a Group level asset quality scale, used for external financial reporting, and a master grading scale for wholesale exposures used for internal management reporting across portfolios. Debt securities are...

  • Page 175
    ...advances to banks (1) £m Loans and advances to customers £m Settlement balances £m Derivatives £m Other financial instruments £m Commitments £m Contingent liabilities £m Total £m AQ1 AQ2 AQ3 AQ4 AQ5 AQ6 AQ7 AQ8 AQ9 AQ10 Accruing past due Impaired Impairment provision Group before RFS...

  • Page 176
    Business review Risk and balance sheet management continued Risk management: Credit risk continued Balance sheet analysis: Asset quality continued Cash and balances at central banks £m Loans and advances to banks (1) £m Loans and advances to customers £m Other financial instruments £m 2011 ...

  • Page 177
    ...table below analyses debt securities by issuer and external ratings. Ratings are based on the lower of S&P, Moody's and Fitch. Central and local government 2011 UK £m US £m Other £m Banks £m Other financial institutions £m Of which ABS (1) £m Corporate £m Total £m Total % Total AAA AA to...

  • Page 178
    Business review Risk and balance sheet management continued Risk management: Credit risk continued Balance sheet analysis: Debt securities continued Central and local government 2010 UK £m US £m Other £m Banks £m Other financial institutions £m Of which ABS (1) £m Corporate £m Total £m ...

  • Page 179
    .... 2010 data are presented on the revised basis. Central and local government 2011 UK £m US £m Other £m Banks £m Other financial institutions £m Of which ABS £m Corporate £m Total £m Held-for-trading (HFT) Designated as at fair value through profit or loss Available-for-sale Loans and...

  • Page 180
    ... and balance sheet management continued Risk management: Credit risk continued Balance sheet analysis continued Asset-backed securities The Group structures, originates, distributes and trades debt in the form of loan, bond and derivative instruments in all major currencies and debt capital markets...

  • Page 181
    ...backed securities by product, geography and measurement classification FVTPL (1) HFT (2) £m 2011 US £m UK £m Europe £m RoW £m Total £m DFV (3) £m AFS (4) £m LAR (5) £m Gross exposure RMBS: government... 5,101 For notes relating to this table refer to page 181. RBS Group 2011 179

  • Page 182
    Business review Risk and balance sheet management continued Risk management: Credit risk continued Balance sheet analysis: Asset-backed securities by product, geography and measurement classification continued FVTPL (1) HFT (2) £m 2010 US £m UK £m Europe £m RoW £m Total £m DFV (3) £m ...

  • Page 183
    ... 1 - - 19 382 20,507 5,480 1,180 427 9,072 1,556 550 1,672 2,200 2,421 45,065 - 584 1,474 324 - 1,377 203 520 - 3,309 7,791 Notes: (1) Fair value through profit or loss. (2) Held-for-trading. (3) Designated as at fair value. (4) Available-for-sale. (5) Loans and receivables. RBS Group 2011 181

  • Page 184
    ...1,949 87,602 Notes: (1) Residential mortgage-backed securities. (2) Includes US agency and Dutch government guaranteed securities. (3) Commercial mortgage-backed securities. (4) Collateralised debt obligations. (5) Collateralised loan obligations. Key points x Carrying value of total ABS decreased...

  • Page 185
    ...values by accounting classification of non-investment grade or not publicly rated ABS. Non-investment grade AFS LAR £m £m Unrated AFS £m 2011 HFT £m Total £m HFT £m LAR £m Total £m RMBS: G10 governments...146 56 170 423 264 1,235 2010 RMBS: prime RMBS: non-conforming...RBS Group 2011 183

  • Page 186
    ...and the credit enhancement of the securitisation structure. Several tranches of notes are issued, each secured against the same portfolio of mortgages, but providing differing levels of seniority to match the risk appetite of investors. The most junior (or equity) notes will suffer early capital and...

  • Page 187
    ... of markto-market (mtm) positions and collateral shown below do not result in a net presentation on the Group's balance sheet under IFRS. 2011 6-12 months £m 2010 6-12 months £m 0-3 months £m 3-6 months £m 1-5 years £m Over 5 years £m Total £m 0-3 months £m 3-6 months £m 1-5 years...

  • Page 188
    ... maturity and the effect of position netting and collateral. 0-3 months £m 3-6 months £m 6-12 months £m 1-5 years £m Over 5 years £m Total £m Counterparty mtm netting £m Net exposure £m 2011 Exchange rate Interest rate Credit derivatives Equity and commodity 23,838 3,977 135 542 28,492...

  • Page 189
    ... and sold protection. 2011 Notional Bought £bn Sold £bn Fair value Bought £bn Sold £bn Notional Bought £bn 2010 Sold £bn Fair value Bought £bn Sold £bn Client-led trading and residual risk Credit hedging - banking book (1) Credit hedging - trading book - Rates - Credit and mortgage markets...

  • Page 190
    ... and balance sheet management continued Risk management: Credit risk continued Balance sheet analysis continued Monoline insurers The table below summarises the Group's exposure to monolines, all of which are in Non-Core. 2011 £m 2010 £m 2009 £m Gross exposure to monolines Hedges with financial...

  • Page 191
    ... the fair value of the related monoline CDSs continue to be recorded in the income statement. The fair value of these reclassified debt securities at 31 December 2011 was £4,453 million (1 July 2008 - £5,071 million after adjusting for both principal based cash flows and foreign exchange effects...

  • Page 192
    ... adjustment Net credit/(debit) relating to realisations, hedges, foreign exchange and other movements Loss from trading activities Key points x The exposure to CDPCs has increased during the year. This was primarily driven by wider credit spreads of the underlying reference loans and bonds. (490...

  • Page 193
    ... are not past due 90 days or revolving credit facilities where identification as 90 days overdue is not feasible. 2011 £m 2010 £m 2009 £m Potential problem loans 739 633 1,009 Both REIL and PPL are reported gross and take no account of the value of any security held which could reduce the...

  • Page 194
    ... % Impairment charge £m Amounts written-off £m 2011 UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Retail & Commercial Global Banking & Markets RBS Insurance and other Core Non-Core Group before RFS MI RFS MI Group 2010 628 672 2,422 3,464 2,079 208...

  • Page 195
    ...below). Key points x REIL increased by £2.2 billion in the year. REIL at 31 December 2011 excludes £1.5 billion (impaired loans £1.3 billion; accruing loans £0.2 billion) in relation to the UK branch-based businesses being sold to Santander UK plc, of which £1.0 billion was in UK Corporate and...

  • Page 196
    ...sheet management continued Risk management: Credit risk continued Balance sheet analysis: REIL, provisions and reserves continued Loans, REIL and impairments by sector and geographical region The tables below analyse gross loans and advances (excluding reverse repos and disposal groups), and related...

  • Page 197
    ... % Impairment charge £m Amounts written-off £m Central and local government Finance - banks - other Residential mortgages Personal lending Property Construction Manufacturing Service industries and business activities - retail, wholesale and repairs - transport and storage - health, education...

  • Page 198
    ... written-off £m Central and local government Finance - banks - other Residential mortgages Personal lending Property Construction Manufacturing Service industries and business activities Agriculture, forestry and fishing Finance leases and instalment credit Interest accruals Latent 7,660 48,934...

  • Page 199
    ... % Impairment charge £m Amounts written-off £m Central and local government Finance - banks - other Residential mortgages Personal lending Property Construction Manufacturing Service industries and business activities - retail, wholesale and repairs - transport and storage - health, education...

  • Page 200
    ... review Risk and balance sheet management continued Risk management: Credit risk continued Balance sheet analysis: REIL, provisions and reserves continued Core REIL as a % of gross loans % 2010 Gross loans £m REIL £m Provisions £m Provisions as a % of REIL % Provisions as a % of gross loans...

  • Page 201
    ...government Finance - banks - other Residential mortgages Personal lending Property Construction Manufacturing Service industries and business activities Agriculture, forestry and fishing Finance leases and instalment credit...100 - - 2,286 of which: UK Europe US RoW Group before RFS MI 315,254 66,707...

  • Page 202
    Business review Risk and balance sheet management continued Risk management: Credit risk continued Balance sheet analysis: REIL, provisions and reserves continued Non-Core REIL Provisions as a % of as a % gross loans of REIL % % 2011 Gross loans £m REIL £m Provisions £m Provisions as a % of ...

  • Page 203
    ... % Impairment charge £m Amounts written-off £m Central and local government Finance - banks - other Residential mortgages Personal lending Property Construction Manufacturing Service industries and business activities - retail, wholesale and repairs - transport and storage - health, education...

  • Page 204
    ... written-off £m Central and local government Finance - banks - other Residential mortgages Personal lending Property Construction Manufacturing Service industries and business activities Agriculture, forestry and fishing Finance leases and instalment credit Interest accruals Latent 1,532 1,360...

  • Page 205
    ...The Group operates a transparent provisions governance framework, setting thresholds to trigger enhanced oversight and challenge. Analyses of provisions are set out on page 204 and 205. Available-for-sale financial assets are initially recognised at fair value plus directly related transaction costs...

  • Page 206
    ... review Risk and balance sheet management continued Risk management: Credit risk continued Balance sheet analysis: REIL, provisions and reserves continued Movement in loan impairment provisions The movement in impairment provisions by division is shown in the table below. UK Retail £m UK Corporate...

  • Page 207
    ... & Markets. (4) Recognised in interest income. Analysis of loan impairment charge The following table analyses impairment losses. 2011 £m 2010 £m 2009 £m Latent loss Collectively assessed Individually assessed Customer loans Bank loans Securities Charge to income statement Charge relating to...

  • Page 208
    ... debt securities and reserves The table below analyses available-for-sale debt securities and related reserves, gross of tax. 2011 UK £m 2010 UK £m US £m Other (1) £m Total £m US £m Other (1) £m Total £m Central and local government Banks Other financial institutions Corporate Total...

  • Page 209
    ... than 12 months Gross unrealised losses Fair value £m £m More than 12 months Gross unrealised Fair value losses £m £m Total Gross unrealised losses £m 2011 Fair value £m Central and local government - Other Banks Other financial institutions Corporate Total Of which ABS 2010 2,878 3,924...

  • Page 210
    ... bolstering bank capital and strengthening capacity to offer financing support to sovereigns losing market access. The ECB continued to buy sovereign debt in the secondary market and increased liquidity support to banks with the introduction of an emergency three-year long-term refinancing operation...

  • Page 211
    ... of a comprehensive country risk management and reporting application, comprising banking and trading book exposures across the Group on a consistent basis, and taking account of country risk transfers given guarantees, insurance and collateral taken. This system supports analysing and managing the...

  • Page 212
    ... country risk reporting systems and their integration with credit, treasury and finance systems, on the representation of country risk aspects in rating models, economic capital models and integrated stress testing, and on the combination with actual and expected returns. All of this should help RBS...

  • Page 213
    ...of collateral) and repos £m Balance sheet exposures £m Contingent liabilities and commitments £m CDS notional less fair value £m 2011 Central banks £m Other banks £m Corporate £m Personal £m Total Of which lending Non-Core £m £m Debt securities £m Total £m Eurozone Ireland Spain...

  • Page 214
    ... management: Country risk continued Lending Central and local government £m Other financial institutions £m Derivatives (gross of collateral) and repos £m Balance sheet exposures £m Contingent liabilities and commitments £m CDS notional less fair value £m 2010 Central banks £m Other banks...

  • Page 215
    ... to Chinese banks increased in the first three quarters of the year, supporting trade finance activities and on-shore regulatory needs, but by the end of 2011 exposure had decreased close to December 2010 levels. The Group reduced lending in the interbank money markets over the final quarter. This...

  • Page 216
    ... Short £m Total debt securities £m Derivatives (gross of collateral) and repos £m Credit default protection (reference entity) Balance sheet exposures £m Notional Bought £m Sold £m Fair value Bought £m Sold £m 2011 Lending £m REIL Provisions £m £m Central and local government Central...

  • Page 217
    ... Short £m Total debt securities £m Derivatives (gross of collateral) and repos £m Credit default protection (reference entity) Balance sheet exposures £m Notional Bought £m Sold £m Fair value Bought £m Sold £m 2011 Lending £m REIL Provisions £m £m Central and local government Central...

  • Page 218
    Business review Risk and balance sheet management continued Risk management: Country risk continued Ireland continued Key points* x The Group's exposure to Ireland is driven by Ulster Bank Group (87% of the Group's Irish exposure at 31 December 2011). The portfolio is predominantly personal lending ...

  • Page 219
    ... Short £m Total debt securities £m Derivatives (gross of collateral) and repos £m Credit default protection (reference entity) Balance sheet exposures £m Notional Bought £m Sold £m Fair value Bought £m Sold £m 2011 Lending £m REIL Provisions £m £m Central and local government Central...

  • Page 220
    Business review Risk and balance sheet management continued Risk management: Country risk continued Spain continued Key points* x The Group maintains strong relationships with Spanish government entities, banks, other financial institutions and large corporate clients. The exposure to Spain is ...

  • Page 221
    ... of new government bonds being issued in January 2012. Financial institutions x The majority of the Group's exposure to Italian financial institutions relates to the top five banks. The Group's product offering consists largely of collateralised trading products and, to a lesser extent, short-term...

  • Page 222
    ... of Greek sovereign debt, the Group recognised an impairment charge in respect of available-for-sale Greek government bonds. Financial institutions x Activity with Greek financial companies is under close scrutiny; exposure is minimal. Corporate x At the start of 2011, the Group reclassified the...

  • Page 223
    ... Key points* x In early 2011, RBS closed its local operations in Portugal, leaving the Group with modest overall exposure of £1.4 billion by year-end. The portfolio, now managed out of Spain, is focused on corporate lending and derivatives trading with the largest local banks. Mediumterm activity...

  • Page 224
    ... Short £m Total debt securities £m Derivatives (gross of collateral) and repos £m Credit default protection (reference entity) Balance sheet exposures £m Notional Bought £m Sold £m Fair value Bought £m Sold £m 2011 Lending £m REIL Provisions £m £m Central and local government Central...

  • Page 225
    ... Short £m Total debt securities £m Derivatives (gross of collateral) and repos £m Credit default protection (reference entity) Balance sheet exposures £m Notional Bought £m Sold £m Fair value Bought £m Sold £m 2011 Lending £m REIL Provisions £m £m Central and local government Central...

  • Page 226
    ... Short £m Total debt securities £m Derivatives (gross of collateral) and repos £m Credit default protection (reference entity) Balance sheet exposures £m Notional Bought £m Sold £m Fair value Bought £m Sold £m 2011 Lending £m REIL Provisions £m £m Central and local government Central...

  • Page 227
    ... debt securities Long £m Short £m Total debt securities £m Derivatives (gross of collateral) and repos £m Credit default protection (reference entity) Balance sheet exposures £m Notional Bought £m Sold £m Fair value Bought £m Sold £m 2011 Lending £m REIL Provisions £m £m Other banks...

  • Page 228
    ... Short £m Total debt securities £m Derivatives (gross of collateral) and repos £m Credit default protection (reference entity) Balance sheet exposures £m Notional Bought £m Sold £m Fair value Bought £m Sold £m 2011 Lending £m REIL Provisions £m £m Central and local government Central...

  • Page 229
    ... Short £m Total debt securities £m Derivatives (gross of collateral) and repos £m Credit default protection (reference entity) Balance sheet exposures £m Notional Bought £m Sold £m Fair value Bought £m Sold £m 2011 Lending £m REIL Provisions £m £m Central and local government Central...

  • Page 230
    Business review Risk and balance sheet management continued Risk management: Country risk continued Eurozone non-periphery Key points* x Due to credit risk and capital considerations, the Group increased exposure to central banks (particularly in Germany and the Netherlands) by depositing with them ...

  • Page 231
    .... Governance Business structure The primary focus of the Group's trading activities is to provide an extensive range of debt and equity financing, risk management and investment services to its customers, including major corporations and financial institutions around the world. The Group undertakes...

  • Page 232
    ...summarises the Group's market risk exposures against the agreed limits. This daily report is sent to the Head of Restructuring & Risk, Global Head of Market & Insurance Risk, business Chief Risk Officers and appropriate business market risk managers. Legal entities, divisions and lower levels in the...

  • Page 233
    ... office as a means of assessing the vulnerabilities of their book. The Global Market Risk Stress Testing Committee reviews and discusses all matters relating to market risk stress testing. Stress test exposures are discussed with senior management and relevant information is reported to the Group...

  • Page 234
    Business review Risk and balance sheet management continued Risk management: Market risk continued GBM traded revenues* 40 40 2010 2011 Full year 2010 Full year 2011 35 35 30 Number of trading days 30 Number of trading days 25 25 20 20 15 15 10 10 5 5 (15) >(1 < (5)...

  • Page 235
    ... these hedge activities. The table below analyses the VaR for the Group's trading portfolios segregated by type of market risk exposure. 2011 Period end Maximum £m £m 2010 Period end Maximum £m £m 2009 Period end Maximum £m £m Trading VaR Interest rate Credit spread Currency Equity Commodity...

  • Page 236
    ... the non-traded VaR are the loans and receivable products that are managed within the credit risk management framework. Non-trading VaR Interest rate Credit spread Currency Equity Diversification (1) Average £m 2011 Period end Maximum £m £m Minimum £m Average £m 2010 Period end Maximum...

  • Page 237
    ... for the banking book portfolio, which comprises illiquid debt securities. These assets are reported on a drawn notional and fair value basis, and managed on a third party asset and RWA basis. Key Points x The increase in total and collateralised debt obligation (CDO) drawn notional year-on-year is...

  • Page 238
    ...-defined processes and procedures for the escalation and management of risks and issues. Key insurance risks are monitored monthly at the Insurance Risk Forum and loss ratio committees, with comprehensive management information being presented regularly (i.e. monthly or quarterly) at the Executive...

  • Page 239
    ... gross income for the year ahead; or the value of a single extreme but plausible operational impact. These are identified and assessed through the scenario analysis programme (refer to Scenario analysis below). x To ensure the Group operates within the set risk appetite, the high-level statements...

  • Page 240
    ... the clear, simple, quick and consistent communication of operational risk events that meet defined threshold criteria to those members of the Group's senior management and Executives who need to know of these events. During 2011, an enhanced EDLM process was launched to promote consistency in the...

  • Page 241
    ... rating system for the assessment of the control environment, and CEC outcomes are reported at both the divisional risk and audit committees and Group Audit Committee. Capital model development At the end of 2011, the Group started to develop a statistical modelling capability for operational risk...

  • Page 242
    ... for the capital treatment of counterparty credit risk in bilateral trades (June 2011); Technical changes to Basel III relating to the treatment of trade finance, aimed at helping promote trade with low-income countries (October 2011); Further work on the capitalisation of bank exposures to central...

  • Page 243
    ... Review (MiFID2) - the EU review of this directive, which sets the framework for investment markets, culminated in the publication of draft legislative text in October 2011. Financial Transaction Tax (FTT) - the EU Commission published proposals for an FTT, which would see trades in bonds and shares...

  • Page 244
    ... Distribution Review relating to the provision of investment advice; ongoing work on the Mortgage Market Review; the establishment of a Steering Group by HM Treasury to devise a suite of simple financial products; and a review of the insurance products that form part of packaged current accounts...

  • Page 245
    ... risks related to capital management, liquidity, credit risk, operational risk and market risk. A significantly enhanced compliance/conduct policy structure was outlined during 2011. It is aligned to a new Conduct Risk Appetite statement as well as the expected direction of the new Financial...

  • Page 246
    ...review Risk and balance sheet management continued Risk management: Compliance risk* continued Anti-Money Laundering During 2011, RBS continued to enhance its Anti Money Laundering (AML) Change Programme across the Group. Key developments include: x A new cohesive target operating model to support...

  • Page 247
    ... plan. In October 2006, the Main scheme was closed to new employees. In November 2009, the Group confirmed that it was making changes to the Main scheme and a number of other defined benefit schemes including the introduction of a limit of 2% per annum (or the annual change in the Consumer Price...

  • Page 248
    ... Risk and balance sheet management continued Risk management: Pension risk* continued The table below shows the sensitivity of the Main scheme's assets and liabilities (measured according to IAS 19 'Employee Benefits') to changes in interest rates and equity values at the year end, taking account...

  • Page 249
    ...under the terms of the APS. The Group has paid APS premiums totalling £2,225 million (2011 - £125 million; 2010 - £700 million; 2009 - £1,400 million). From 31 December 2011 premiums of £125 million are payable quarterly until the earlier of 2099 and the date the Group leaves the Scheme. Losses...

  • Page 250
    ... Scheme. Credit impairments and write-downs The table below analyses the credit impairment provision (adjusted for write-downs) and adjustments to par value (including available-for-sale reserves) relating to covered assets. 2011 £m 2010 £m 2009 £m Loans and advances Debt securities Derivatives...

  • Page 251
    ... in Global Banking & Markets and an APS portfolio in UK Corporate that relates to larger clients. All other APS portfolios in the Group are unaffected. The overall economic aspects of the Scheme are unchanged, including value and term of cover, credit derivative valuation and capital effects...

  • Page 252
    ... 257 Executive Committee 258 Corporate governance 263 Report of the Group Audit Committee 268 Report of the Board Risk Committee 272 Directors' remuneration report 294 Other remuneration disclosure 296 Compliance report 298 Report of the directors 303 Directors' interests in shares 304 Statement of...

  • Page 253
    ... governance policy is helping us achieve this and we will be monitoring compliance with the policy on a continuing basis. Our statement of compliance with the UK Corporate Governance Code issued by the Financial Reporting Council in May 2010 (the "Code") is set out on page 296. The Board During 2011...

  • Page 254
    ... Group Board Committee Group Board Committee Executive Group Board is the main decision making forum at Group level, setting the strategic direction of the Group and ensuring that the Group manages risk effectively. The Group Board is accountable to shareholders for financial and operational...

  • Page 255
    ... Board Committee membership 1997 to 2008 he held a number of senior positions with x Executive Committee Bank of New York and later Bank of New York Mellon, most recently as vice-chairman and chief financial officer and before that was responsible for Asset Management and Market Related businesses...

  • Page 256
    ...Company, AT Kearney, as chief financial x Chair of the Governing Board of Women's officer at Barclays Global Investors (now BlackRock) and Initiative for Self Employment managing partner of Belvedere Capital, a private equity firm focused on buy-outs in the financial services sector. Board Committee...

  • Page 257
    ... chairman of the Audit Committee of BP plc Former global chairman, financial services for KPMG. x Board member of Financial Skills Previously held senior leadership roles within KPMG Partnership including as a member of the KPMG UK board from x Member of the Financial Reporting Review 1999 to 2006...

  • Page 258
    ... and long-term savings businesses. He held a number of senior executive positions during his career at Aviva including his role as group finance director until January 2010. President Elect of the Institute and Faculty of Actuaries and Fellow of the Association of Certified Public Accountants. Group...

  • Page 259
    ... Affairs, Global Restructuring Group and the Asset Protection Scheme. Before joining RBS, Nathan spent eight years with Abbey National plc in several roles and was latterly the chief financial officer and main board director responsible for Products & Marketing, HR, Insurance and Cards. Before...

  • Page 260
    ... the Group's business operations; the allocation and raising of capital; and the preparation and approval of the Group's annual report and accounts. The Board's terms of reference includes key aspects of the company's affairs reserved for the Board's decision and are reviewed bi-annually. The terms...

  • Page 261
    ... present. Total number of Board meetings in 2011 Attended/ scheduled An annual programme of divisional presentations is agreed by the Board each year. During 2011, the Board received in-depth presentations from Global Transaction Services, Non-Core division, Global Banking & Markets, RBS Insurance...

  • Page 262
    ...UK Bribery Act 2010, the European Commission Green Paper on the EU Corporate Governance Framework, various Financial Reporting Council Consultations, amendments to the Code, the Capital Requirements Directive IV, a Group Treasury presentation on Balance Sheet Management and Capital Management & Term...

  • Page 263
    ... the Group Board Committees. Based on the expertise of the incoming nonexecutive directors, the Group Nominations Committee agreed to strengthen the Group Board Committees with additional members. The terms of reference of the Group Nominations Committee are available on the Group's website www.rbs...

  • Page 264
    ... available. Communication with the company's largest institutional shareholders is undertaken as part of the Investor Relations programme: x the Group Chief Executive and Group Finance Director meet regularly with UKFI, the organisation set up to manage the Government's investments in financial...

  • Page 265
    ...the Group's businesses, in particular the GBM division; the ongoing Eurozone crisis and impairment of the Group's sovereign debt exposure; impairment charges in the UK Corporate and Ulster Bank divisions; Payment Protection Insurance (PPI) provision; the implications, including the capital, risk and...

  • Page 266
    ...losses in the Group's loans and advances and availablefor-sale securities; with particular emphasis on Eurozone issues, sovereign debt exposures, Ulster Bank and UK Corporate impairment; PPI provision; actuarial assumptions for the Group Pension Fund and the Group's general insurance claims reserves...

  • Page 267
    ... with in a timely and appropriate manner. The Group Audit Committee also considers Group Internal Audit's annual plan and the adequacy of its resources and budget. During 2011, the Group Audit Committee actively supported the development of the Internal Audit vision and strategy and the transition...

  • Page 268
    ... reviews (including US reporting requirements) and periodic profit verifications. Annual audit services also include statutory or non-statutory audits required by any Group companies that are not incorporated in the UK. Terms of engagement for these audits are agreed separately with management...

  • Page 269
    ... in Note 5 on the Group's consolidated accounts. Group's relationship with its regulators The Group Audit Committee has a responsibility to monitor the Group's relationship with the Financial Services Authority (FSA) and other regulatory bodies. During 2011, it received regular reports on the Group...

  • Page 270
    ...bring you this report on the activity of the Board Risk Committee during 2011. As one would expect, managing the risks presented by the challenging external market conditions that have continued throughout 2011 has been a key priority of the Committee. Market, credit and liquidity risk have featured...

  • Page 271
    ..., risk management and finance executives and the internal auditors. External advice may be sought by the Board Risk Committee where considered appropriate. During 2011, the members of Board Risk Committee in conjunction with the members of the Group Audit Committee took part in an annual programme...

  • Page 272
    ... the risks inherent within large strategic transactions such as the proposed transfers of a substantial part of the business activities of RBS N.V. to the Royal Bank. The Committee reviewed the capital and liquidity position of the Group regularly during 2011 in light of external conditions and...

  • Page 273
    ... the changes to the risk assessment process and reporting; enhance the bench strength of the Risk Management function; and the Committee's interaction with the Executive Risk Forum. x the structure of the agendas to ensure the Committee is focused on consideration of the key issues - while...

  • Page 274
    .... Key financial achievements for 2011 were: x x x x As well as the financial achievements above, the Committee takes into account the Group's performance against a range of broader strategic objectives, including support to personal and business customers in the communities in which it operates...

  • Page 275
    ... scope of our activities in order to build a sustainable business, capable of serving customers and delivering fair and adequate returns for shareholders and employees. Our restrained approach to pay is not without risk. Employees at all levels of RBS have choices about where they work. If we allow...

  • Page 276
    ... by the Committee, Share Bank arrangements and new long term incentive plans (LTIP) performance measures were introduced; x remuneration arrangements and year-end performance reports for members of the Executive Committee, Management Committee and annual performance objectives for 2011 and also...

  • Page 277
    ... reviews for executive directors, members of the Executive Committee and Management Committee; and x outcome of Group Internal Audit review on how the FSA Remuneration Code has been implemented which showed management is aware of the key risks and are pro-active in identifying issues relating...

  • Page 278
    ... Finance Provides independent review of the financial performance of the Divisions and Group and reports on the Group's capital position. Group HR Reward Supports the Group Remuneration Committee as they develop reward philosophy, strategy and policies across the RBS Group. Provides input on market...

  • Page 279
    ... the letter from the Committee Chair, value sharing between investors and employees and retention of capital have been key areas for the Remuneration Committee during 2011. In 2011 variable compensation was 11% of Core Bank operating profit, down from 16% in 2010. This proportion compares favourably...

  • Page 280
    ... to pre-bonus profit. These ratios help to ensure appropriate sharing of value between employees and shareholders. Finally bonus proposals are reviewed against our capital adequacy framework to ensure that regulatory requirements are met. x x x x adjustment of current year bonus awards; dismissal...

  • Page 281
    ...and future incentive schemes support our business strategy and risk appetite. All incentive awards are subject to appropriate governance, including independent review by the Risk Management, Finance and HR functions, with oversight from the Group Performance and Reward Committee, which has delegated...

  • Page 282
    ...Committee takes into account pay and employment conditions of employees of the company. It does so by reference to annual market data against an assessment of the competitiveness of the current base salary ranges or benchmarks and actual salaries in payment. Any salary increases awarded to executive...

  • Page 283
    ... in relation to 2012 performance will be deferred and will vest, subject to satisfactory performance. The actual value of the long term incentive awards will depend on performance over the period 2012 to 2014 and the share price at the time the awards vest. Group Chief Executive - Stephen Hester...

  • Page 284
    ...Share Bank for the 2011 performance year was 6.0 million shares for the Group Chief Executive and 3.75 million shares for the Group Finance Director. This was based on the normal maximum annual incentive levels for executive directors at a share price of 40p per share (calculated as an average share...

  • Page 285
    ... of 'best in class' for external reporting within the UK market. Key contribution to de-risking strategy with significantly reduced reliance on short term funding and raised £20 billion for 2011 term funding in challenging conditions. Good interest rate positioning achieved. New central bank and...

  • Page 286
    ... targets have been met or exceeded. Strong performance on capital, leverage and funding measures, risk appetite embedded. Good progress on brand franchises (e.g., 'Helpful Banking' in UK), sustainability and employee engagement measures. Further work needed on cost:income ratio. 284 RBS Group 2011

  • Page 287
    ... the Group's share price reaches been met. 77.5p. Pro-rata vesting in between these points. Note: For the formulaic performance conditions applying to the executive directors, the percent vesting outcomes were calculated by PwC, based on incremental economic profit figures from Group Finance (Group...

  • Page 288
    ... 60 40 Royal Bank of Scotland 20 0 2007 FTSE 100 FTSE Banks 2008 2009 2010 2011 Implementation of the Group's recovery plan started in January 2009 with the publication of the preliminary 2008 losses. The share price reached a low point of just under 10p per share on the news. Since that date to 22...

  • Page 289
    ... cost of equity, where: Return attributable to shareholders is Core Operating Profit reported in the financial statements, excluding movements in the fair value of own debt and APS, taxed at a standard tax rate. Equity is defined as tangible equity allocated to the Core businesses, with adjustments...

  • Page 290
    ... Bank Group UBS Unicredito Wells Fargo & Company 200% 150% 50% Strategic Scorecard measures and targets Non-Core assets Cumulative Non-Core loss Core Tier 1 Capital Wholesale funding Liquidity reserves Leverage ratio Loan:deposit ratio Earnings volatility Customer franchise Cost:income ratio...

  • Page 291
    ...be based on salary only (i.e. no bonus or benefits). The company has agreed that, provided certain conditions are met, on leaving employment, Bruce Van Saun will not forfeit awards under the rules of the Group's share plans. Stephen Hester 4 November 2008 12 months 12 months RBS Group 2011 289

  • Page 292
    ... a cash payment in lieu of notice of twelve months' fees. Fees for non-executive directors The table below sets out the remuneration structure for non-executive directors for the year ended 31 December 2011. The Senior Independent Director and Chairs of the Board Committees receive a composite...

  • Page 293
    ... and the level of fees paid to non-executive directors of comparable major UK companies. Non-executive directors do not participate in any incentive or performance plan. Non-executive directors fees are reviewed regularly. Board fees £000 Board Committee fees £000 2011 Total £000 2010 Total £000...

  • Page 294
    ... to any of the terms of the plan during the year. Awards held at 1 January 2011 Awards granted in 2011 Market price on award £ Awards vested in 2011 Market price on vesting £ Awards held at 31 December 2011 End of period for qualifying conditions to be fulfilled Stephen Hester (1) Bruce Van Saun...

  • Page 295
    ...of new issue shares and market purchase shares. Directors' pension arrangements Executive directors receive a cash allowance in place of pension benefits or have amounts credited to a defined contribution pension arrangement: 2011 £000 2010 £000 Cash allowances in place of pension Stephen Hester...

  • Page 296
    ... of 15% ROE and outlook 3. Sustaining key customer/market positions 4. Management team renewal 5. Efficiency (Balance Sheet, Risk, Cost:income) 6. Funding & Capital Structure 7. Support of Non-Core 8. Total Overall weighting % 2011 % Final vesting % 20 30 20 10 10 5 5 100 6 9 6 3 3 1.5 1.5 30...

  • Page 297
    ... relating primarily to lower GBM profitability in 2011 and the closure of cash equities (4% of GBM 2011 income) where targets had not been realised, hence the 27% reduction in vested award value. While John Hourican, as a member of RBS executive committee, is eligible for annual LTIP awards...

  • Page 298
    ... by the Group, which operated throughout the year ended 31 December 2011 and to 22 February 2012, the date the directors approved the Report and Accounts. This is confirmed by a semi-annual Control Environment Certification process which requires senior members of the executive and management to...

  • Page 299
    ... of the Group Chief Executive. The Group Audit Committee complies with the provisions of the NYSE corporate governance listing standards that relate to the composition, responsibilities and operation of audit committees. In April 2011, the company submitted its required annual written affirmation...

  • Page 300
    ... policies and information on the Group's exposure to price, credit, liquidity and cash flow risk, is discussed in the Risk and balance sheet management section of the Business review on pages 100 to 249. Financial performance A review of the Group's performance during the year ended 31 December 2011...

  • Page 301
    ... Direct SME customers across the UK. Employees As at 31 December 2011, the Group employed over 146,800 employees (full-time equivalent basis) throughout the world. Details of employee related costs are included in Note 3 on the consolidated accounts. The Group operates certain employee share plans...

  • Page 302
    ... environmental issues which confront the business on a daily basis. For more information on the governance structure, see page 30. The Group continues to do significant work and address challenges across five key themes: Fair banking, Supporting enterprise, Employee engagement, Safety and security...

  • Page 303
    ... on transfers of shares while shares are subject to the plans or the terms under which the shares were awarded. The rights and obligations of holders of non-cumulative preference shares are set out in Note 27 on the consolidated accounts. Except in relation to the Dividend Access Share, the company...

  • Page 304
    ...Executive and Management Committees and FSA Approved Persons. In terms of section 236 of the Companies Act, Qualifying Pension Scheme Indemnity Provisions have been issued to all trustees of the Group's pension schemes. Post balance sheet events There have been no significant events between the year...

  • Page 305
    ...: (1) Value is based on the share price at 30 December 2011 (the last working day of 2011), which was 20.18p. During the year ended 31 December 2011, the share price ranged from 17.34p to 49.0p. (2) Mr Di Iorio holds his interests in the company's shares in the form of American Depository Receipts...

  • Page 306
    ... financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and x the Business review...

  • Page 307
    Financial statements 306 Independent auditor's report 307 Consolidated income statement 308 Consolidated statement of comprehensive income 309 Consolidated balance sheet 310 Consolidated statement of changes in equity 313 Consolidated cash flow statement 314 Accounting policies 327 Notes on the ...

  • Page 308
    ... financial statements of The Royal Bank of Scotland Group plc (the "company") and its subsidiaries (together the "Group") for the year ended 31 December 2011 which comprise the accounting policies, the consolidated and company balance sheets as at 31 December 2011, the consolidated income statement...

  • Page 309
    ...) - - (6.3p) (6.3p) (0.1p) (0.1p) The accompanying notes on pages 327 to 419, the accounting policies on pages 314 to 325 and the audited sections of the Business review: Risk and balance sheet management on pages 100 to 249 form an integral part of these financial statements. RBS Group 2011 307

  • Page 310
    Consolidated statement of comprehensive income for the year ended 31 December 2011 Note 2011 £m 2010 £m 2009 £m Loss for the year Other comprehensive income/(loss) Available-for-sale financial assets Cash flow hedges Currency translation Actuarial (losses)/gains on defined benefit plans ...

  • Page 311
    ... the Business review: Risk and balance sheet management on pages 100 to 249 form an integral part of these financial statements. The accounts were approved by the Board of directors on 22 February 2012 and signed on its behalf by: Philip Hampton Chairman Stephen Hester Group Chief Executive Bruce...

  • Page 312
    Consolidated statement of changes in equity for the year ended 31 December 2011 2011 £m 2010 £m 2009 £m Called-up share capital At 1 January Ordinary shares issued in respect of placing and open offer B shares issued Ordinary shares issued Preference shares redeemed Cancellation of non-voting...

  • Page 313
    ... of equity preference shares Redemption of preference shares classified as debt Transfer from merger reserve Actuarial (losses)/gains recognised in retirement benefit schemes - gross - tax Purchase of non-controlling interest Shares issued under employee share schemes Share-based payments - gross...

  • Page 314
    ... 2010 - £340 million charge). The accompanying notes on pages 327 to 419, the accounting policies on pages 314 to 325 and the audited sections of the Business review: Risk and balance sheet management on pages 100 to 249 form an integral part of these financial statements. 312 RBS Group 2011

  • Page 315
    ... (8,592) 9,261 134,925 144,186 37 The accompanying notes on pages 327 to 419, the accounting policies on pages 314 to 325 and the audited sections of the Business review: Risk and balance sheet management on pages 100 to 249 form an integral part of these financial statements. RBS Group 2011 313

  • Page 316
    ... profit or loss, available-for-sale financial assets and investment property. Recognised financial assets and financial liabilities in fair value hedges are adjusted for changes in fair value in respect of the risk that is hedged. The company's financial statements and the Group's consolidated...

  • Page 317
    ... form of pensions and healthcare plans to eligible employees. For defined benefit schemes, scheme liabilities are measured on an actuarial basis using the projected unit credit method and discounted at a rate determined by reference to market yields at the end of the reporting period on high quality...

  • Page 318
    ...is stated at fair value based on valuations by independent registered valuers. Fair value is based on current prices for similar properties in the same location and condition. Any gain or loss arising from a change in fair value is recognised in profit or loss. Rental income from investment property...

  • Page 319
    ...operating leases. Finance lease receivables are included in the balance sheet, within Loans and advances to banks and Loans and advances to customers, at the amount of the net investment in the lease being the minimum lease payments and any unguaranteed residual value discounted at the interest rate...

  • Page 320
    ... investments; held-for-trading; designated as at fair value through profit or loss; loans and receivables; or available-for-sale financial assets. Regular way purchases of financial assets classified as loans and receivables are recognised on settlement date; all other regular way transactions...

  • Page 321
    ... fair value becomes the asset's new cost or amortised cost as appropriate. Gains and losses recognised up to the date of reclassification are not reversed. Fair value for a net open position in a financial asset that is quoted in an active market is the current bid price times the number of units...

  • Page 322
    ... method (see Accounting policy 3). Fair value for a net open position in a financial liability that is quoted in an active market is the current offer price times the number of units of the instrument issued. Fair values for financial liabilities not quoted in an active market are determined using...

  • Page 323
    ...arise in profit or loss. Gains and losses are recorded in Income from trading activities except for gains and losses on those derivatives that are managed together with financial instruments designated at fair value; these gains and losses are included in Other operating income. RBS Group 2011 321

  • Page 324
    ... of employee services received in exchange for an award of shares or share options granted is measured by reference to the fair value of the shares or share options on the date the award is granted and takes into account non-vesting conditions and market performance conditions (conditions related to...

  • Page 325
    ... and demand deposits with banks together with short-term highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value. Critical accounting policies and key sources of estimation uncertainty The reported results of the Group are...

  • Page 326
    ...banks and customer accounts (held-for-trading and designated as at fair value though profit or loss) - deposits measured at fair value principally include repurchase agreements (repos), cash collateral and investment contracts issued by the Group's life assurance businesses. Debt securities in issue...

  • Page 327
    ... as at fair value through profit or loss attributable to own credit; these must be presented in other comprehensive income. In December 2010, the IASB issued amendments to IFRS 9 and to IFRS 7 'Financial Instruments: Disclosures' delaying the effective date of IFRS 9 to annual periods beginning...

  • Page 328
    ...', effective for annual periods beginning on or after 1 January 2012, is not expected to have a material effect on the Group or the company. In May 2011, the IASB issued six new or revised standards: IFRS 10 'Consolidated Financial Statements' which replaces SIC-12 'Consolidation - Special Purpose...

  • Page 329
    ... to customers Loans and advances to banks Debt securities Interest receivable Customer accounts: demand deposits Customer accounts: savings deposits Customer accounts: other time deposits Deposits by banks Debt securities in issue Subordinated liabilities Internal funding of trading businesses...

  • Page 330
    Notes on the consolidated accounts continued 2 Non-interest income (excluding insurance net premium income) 2011 £m 2010 £m 2009 £m Fees and commissions receivable Payment services Credit and debit card fees Lending (credit facilities) Brokerage Trade finance Investment management Other 1,498 ...

  • Page 331
    ...Finance Act 2011 introduced an annual bank levy in the UK. The levy is collected through the existing quarterly Corporation Tax collection mechanism starting with payment dates on or after 19 July 2011. The levy is based on the total chargeable equity and liabilities as reported in the balance sheet...

  • Page 332
    ... operations of the Group at 31 December, excluding temporary staff, was as follows: 2011 2010 2009 UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Retail & Commercial Global Banking & Markets RBS Insurance Central items Core Non-Core Business Services...

  • Page 333
    ...-Term Performance Plan. (4) The strike price of options and the fair value on granting awards of fully paid shares is the average market price over the five trading days preceding grant date. Sharesave 2011 Average Shares under option exercise price £ (million) 2010 Average Shares exercise price...

  • Page 334
    Notes on the consolidated accounts continued 3 Operating expenses continued Long-term incentives Value at grant £m 2011 Shares awarded (million) Options over shares (million) Value at grant £m 2010 Shares awarded (million) Options over shares (million) Value at grant £m 2009 Shares awarded (...

  • Page 335
    ... The Royal Bank of Scotland Group Pension Fund (the "Main scheme") which accounts for 85% (2010 - 84%; 2009 - 61%) of the Group's retirement benefit obligations. The Group's defined benefit schemes generally provide a pension of onesixtieth of final pensionable salary for each year of service prior...

  • Page 336
    ... the company with a fair value of £3 million (2010 - £9 million; 2009 - £4 million) are held by the Group's Main scheme which also holds other financial instruments issued by the Group with a value of £424 million (2010 - £264 million; 2009 - £192 million). The expected return on plan assets...

  • Page 337
    ... return Interest cost Current service cost Past service cost Statement of comprehensive income - Actuarial gains and losses Contributions by employer Contributions by plan participants and other scheme members Benefits paid Expenses included in service cost At 31 December 2011 Fair value of plan...

  • Page 338
    Notes on the consolidated accounts continued 4 Pensions continued The pension charge/(credit) to the income statement comprises: 2011 £m 2010 £m 2009 £m Continuing operations Discontinued operations 349 - 349 441 21 462 (1,510) 21 (1,489) Curtailment gains of £78 million were recognised in ...

  • Page 339
    ... of financial information in connection with disposals by the Group and £1.7 million (2010 - £2.1 million) in respect of other assurance services. (3) Includes fees of £1.0 million (2010 - £0.8 million) in respect of work performed by the auditors as reporting accountants on debt and equity...

  • Page 340
    ... UK tax rate change - deferred tax impact (1) Unrecognised timing differences Non-deductible goodwill impairment Items not allowed for tax - losses on strategic disposals and write-downs - UK bank levy - employee share schemes - other disallowable items Non-taxable items - gain on sale of Global...

  • Page 341
    ...of US$0.01 Non-cumulative preference shares of â,¬0.01 Non-cumulative preference shares of £1 - issued to UK Financial Investments Limited (1) - other Paid-in equity holders Interest on securities classified as equity, net of tax Total Note: (1) Includes £50 million redemption premium on repayment...

  • Page 342
    ...financial assets/ liabilities £m 2011 Hedging derivatives £m Availablefor-sale £m Finance leases £m Total £m Assets Cash and balances at central banks Loans and advances to banks - reverse repos - other (1) Loans and advances to customers - reverse repos - other (2) Debt securities Equity...

  • Page 343
    ... (3) Customer accounts - repos - other (4) Debt securities in issue (5) Settlement balances Short positions Derivatives Accruals, deferred income and other liabilities Retirement benefit liabilities Deferred tax Insurance liabilities Subordinated liabilities Liabilities of disposal groups Equity 20...

  • Page 344
    ... (3) Customer accounts - repos - other (4) Debt securities in issue (5) Settlement balances Short positions Derivatives Accruals, deferred income and other liabilities Retirement benefit liabilities Deferred tax Insurance liabilities Subordinated liabilities Liabilities of disposal groups Equity 20...

  • Page 345
    Amounts included in the consolidated income statement: 2011 £m 2010 £m 2009 £m Gains on financial assets/liabilities designated as at fair value through profit or loss Gains/(losses) on disposal or settlement of loans and receivables 1,761 59 279 267 1,441 (573) Notes: (1) Includes items in ...

  • Page 346
    ... had reclassification not occurred £m 2010 Carrying value £m Fair value £m Amount recognised in income statement Impairment (losses)/ releases Income £m £m Reduction in profit or loss as result of reclassification £m Reclassified from HFT to LAR Loans Debt securities 5,378 3,530 8,908...

  • Page 347
    ... issues within the trading business and provides a ratification to the appropriateness of areas with high levels of residual valuation uncertainty. Committee members include the Group Finance Director, the Group Chief Accountant, Global Head of Market and Insurance Risk, GBM Chief Financial Officer...

  • Page 348
    ... bonds, certain corporate securities and some mortgage-related products. Credit spreads - where available, these are derived from prices of credit default swaps or other credit based instruments, such as debt securities. For others, credit spreads are obtained from pricing services. Interest rates...

  • Page 349
    ... risk mitigation strategies (including analysing the underlying trades and the cost of hedging expected default losses in excess of the available capital); and the total notional of trades transacted by each CDPC together with the level of resources available to settle default payments. . RBS Group...

  • Page 350
    .... Where there is limited bid-offer information for a product, the pricing approach and risk management strategy are taken into account when assessing the reserve. Amounts deferred on initial recognition On initial recognition of financial assets and liabilities valued using valuation techniques...

  • Page 351
    ... not equate to the reported profit or loss for own credit. The balance sheet reserves are stated by conversion of underlying currency balances at spot rates for each period whereas the income statement includes intra-period foreign exchange sell-offs. The effect of change in credit spreads could be...

  • Page 352
    ...repos Collateral Other Loans and advances to customers Reverse repos Collateral Other Debt securities UK government US government Other government Corporate Financial institutions Equity shares Derivatives Foreign exchange Interest rate Equities and commodities Credit - APS Credit - other 22.4 35...

  • Page 353
    ...-grade corporate bonds, certain mortgage products, including CLOs, most bank loans, repos and reverse repos, less liquid listed equities, state and municipal obligations, most notes issued, investment contracts issued by the Group's life assurance business (2009) and certain money market securities...

  • Page 354
    ... 1.1 1.3 0.7 2.0 10 80 90 100 190 (10) (40) (50) (90) (140) Liabilities Customer accounts Debt securities in issue Short positions Derivatives Foreign exchange Interest rate Equity and commodities Credit - APS Credit - other - 2.2 0.3 0.4 1.1 0.5 0.2 1.6 3.8 6.3 20 80 10 30 80 10 300 80 500 610...

  • Page 355
    ... level, for some products an element of judgment is required. The majority of the Group's financial instruments carried at fair value are classified as level 2: inputs are observable either directly (i.e. as a price) or indirectly (i.e. derived from prices). Active and inactive markets A key...

  • Page 356
    ...the fair value will typically be determined with reference to observable market transactions in other loans or credit related products including debt securities and credit derivatives. Assumptions are made about the relationship between the loan and the available benchmark data. 354 RBS Group 2011

  • Page 357
    ... as level 3. Equity shares Private equity investments include unit holdings and limited partnership interests primarily in corporate private equity funds, debt funds and fund of hedge funds. Externally managed funds are valued using recent prices where available. Where not available, the fair value...

  • Page 358
    ... consensus pricing data. Credit derivatives - APS The Group purchased credit protection over a portfolio of specified assets and exposures (covered assets) from HM Treasury. The Group has a right to terminate the APS at any time provided that the Financial Services Authority has confirmed in writing...

  • Page 359
    ... referenced to a bespoke portfolio of corporate names on which the Group purchases credit protection. Bespoke portfolio tranches are valued using Gaussian Copula, a standard method which uses observable market inputs (credit spreads, index tranche prices and recovery rates) to generate an output...

  • Page 360
    ... of one or more underlying, including interest rates, foreign exchange rates and commodities. Exotic options do not trade in active markets except in a small number of cases. Consequently, the Group uses models to determine fair value using valuation techniques typical for the industry. These...

  • Page 361
    ... in the income statement relating to instruments held at year end £m Level 3 transfers In £m Out £m Issuances £m Purchases £m Settlements £m Sales £m Foreign exchange £m At 31 December £m 2011 At 1 January £m Assets FVTPL (2) Loans and advances Debt securities Equity shares Derivatives...

  • Page 362
    ... £m £m Transfers in/(out) of level 3 Issuances £m £m Amounts recorded in the income statement relating to instruments held at year end £m 2010 Purchases £m Settlements £m Foreign Sales exchange £m £m At 31 December £m Assets FVTPL (2) Loans and advances Debt securities Equity shares...

  • Page 363
    ... 2010 Fair value £bn 2009 Carrying value £bn 2009 Fair value £bn Financial assets Cash and balances at central banks Loans and advances to banks Loans and advances to customers Debt securities Settlement balances Financial liabilities Deposits by banks Customer accounts Debt securities in issue...

  • Page 364
    ... months £m Total £m Assets Cash and balances at central banks Loans and advances to banks Loans and advances to customers Debt securities Equity shares Settlement balances Derivatives Liabilities Deposits by banks Customer accounts Debt securities in issue Settlement balances and short positions...

  • Page 365
    ... up to a period of 20 years from the balance sheet date, including future payments of interest. 2011 0-3 months £m 3-12 months £m 1-3 years £m 3-5 years £m 5-10 years £m 10-20 years £m Deposits by banks Customer accounts Debt securities in issue Derivatives held for hedging Subordinated...

  • Page 366
    ... (408) 17,283 Note: (1) Includes £123 million relating to loans and advances to banks (2010 - £127 million; 2009 - £157 million). Impairment losses charged to the income statement Loans and advances to customers Loans and advances to banks Debt securities Equity shares 2011 £m 2010 £m 2009...

  • Page 367
    ... value 2010 £m Carrying value 2009 £m Available-for-sale securities Debt securities Equity shares Loans and receivables Debt securities 873 57 580 43 758 180 234 1,164 230 853 - 938 The following table shows financial and non-financial assets, recognised on the Group's balance sheet...

  • Page 368
    ...the consolidated accounts continued 14 Derivatives Companies in the Group transact derivatives as principal either as a trading activity or to manage balance sheet foreign exchange, interest rate and credit risk. The Group enters into fair value hedges, cash flow hedges and hedges of net investments...

  • Page 369
    ... Net investment hedging Exchange rate contracts Hedge ineffectiveness recognised in other operating income comprised: - 3,550 - 4,288 - 2,496 - 3,767 160 2,672 38 3,292 - 3,985 - 1,445 - 2,903 - 995 2 1,753 7 3,080 148 148 30 102 10 90 2011 £m 2010 £m 2009 £m Fair value...

  • Page 370
    ... the consolidated accounts continued 15 Debt securities Central and local government 2011 UK £m US £m Other £m Banks £m Other financial institutions £m Corporate £m Total £m Of which ABS (1) £m Held-for-trading Designated as at fair value through profit or loss Available-for-sale Loans and...

  • Page 371
    ...-backed securities issued by US federal agencies and government sponsored entities, and covered bonds. 16 Equity shares Listed £m 2011 Unlisted £m Total £m Listed £m 2010 Unlisted £m Total £m Listed £m 2009 Unlisted £m Total £m Held-for-trading Designated as at fair value through profit...

  • Page 372
    Notes on the consolidated accounts continued 17 Intangible assets Goodwill £m Core deposit intangibles £m Other purchased intangibles £m Internally generated software £m Total £m 2011 Cost At 1 January Transfers to disposal groups Currency translation and other adjustments Acquisition of ...

  • Page 373
    ... are as follows: Goodwill at 30 September UK Retail UK Corporate Wealth Global Transaction Services US Retail & Commercial RBS Insurance Recoverable amount based on 2011 £m 2010 £m 2009 £m Value in use Value in use Value in use Value in use Value in use Value in use 2,697 2,693 611 2,370...

  • Page 374
    ...CGUs at 30 September 2011 were based on the value in use test, using management's latest five-year forecasts. The long-term growth rates have been based on respective country GDP rates adjusted for inflation. The risk discount rates are based on observable market long-term government bond yields and...

  • Page 375
    ... £m Short leasehold premises £m Computers and other equipment £m Operating lease assets £m Total £m 2011 Cost or valuation At 1 January Transfers to disposal groups Currency translation and other adjustments Reclassifications Additions Expenditure on investment properties Change in fair value...

  • Page 376
    ... properties are valued to reflect fair value, that is, the market value of the Group's interest at the reporting date excluding any special terms or circumstances relating to the use or financing of the property and transaction costs that would be incurred in making a sale. Observed market data such...

  • Page 377
    ..., net of tax 2011 £m 2010 £m 2009 £m Discontinued operations Total income Operating expenses Insurance net claims Impairment losses Profit before tax Gain on disposal before recycling of reserves Recycled reserves Operating profit/(loss) before tax Tax Profit/(loss) after tax Businesses acquired...

  • Page 378
    ... and liabilities of disposal groups 2011 UK branch based businesses £m Other £m Total £m 2010 £m 2009 £m Assets of disposal groups Cash and balances at central banks Loans and advances to banks Loans and advances to customers Debt securities and equity shares Derivatives Intangible assets...

  • Page 379
    ... changes with respect to the handling of mis-selling PPI complaints. In October 2010, the British Bankers' Association (BBA) filed an application for judicial review of the FSA's policy statement and of related guidance issued by the Financial Ombudsman Service (FOS). In April 2011, the High...

  • Page 380
    ...228) Pension £m Intangibles £m Share schemes £m Tax losses carried forward £m Other £m Total £m At 1 January 2010 Transfers to disposal groups (Disposal)/ acquisition of subsidiaries Charge/(credit) to income statement Charge/(credit) to other comprehensive income Currency translation...

  • Page 381
    24 Insurance business 2011 £m 2010 £m 2009 £m Insurance premium income Reinsurers' share Net premium income Insurance claims Reinsurers' share Net claims Insurance liabilities General insurance business Life assurance business - disposed - retained 4,526 (270) 4,256 3,084 (116) 2,968 5,379 (...

  • Page 382
    ... but not reported which is excluded from 2009. The rate of interest used for the calculation of present values is 4.5% (2010 - 4.5%; 2009 - 4.1%). The average interval between the date of the last future cash flow being discounted and the end of the financial year is 50.3 years on open and settled...

  • Page 383
    ... 2011 £m Total £m Estimate of ultimate claims costs: At end of accident year One year later Two years later Three years later Four years later Five years later Six years later Seven years later Eight years later Nine years later Current estimate of cumulative claims Cumulative payments to date...

  • Page 384
    ...emerging new heads of damage or types of claim that are not envisaged when the policy is written. The following table shows the expected maturity of undiscounted insurance liabilities up to 20 years, excluding those linked directly to the financial assets backing these contracts (2011 and 2010 - nil...

  • Page 385
    ...) will pay external investors any dividends or coupons on existing hybrid capital instruments (including preference shares, B shares and upper and lower tier 2 instruments) from 30 April 2010 for a period of two years thereafter ("the Deferral Period"), or exercise any call rights in relation to...

  • Page 386
    ... of subordinated liabilities by (1) the final redemption date; and (2) the next call date. 2012 £m 2013 £m 2014-2016 £m 2017-2021 £m Thereafter £m Perpetual £m Total £m 2011 - final redemption Sterling US dollar Euro Other 73 302 220 29 624 Currently £m 2012 £m 158 555 1,299 - 2,012 2013...

  • Page 387
    Dated loan capital 2011 £m 2010 £m 2009 £m The Royal Bank of Scotland Group plc US$300 million 6.375% subordinated notes 2011 (redeemed February 2011) (1) US$750 million 5% subordinated notes 2013 (1) US$750 million 5% subordinated notes 2014 (1) US$250 million 5% subordinated notes 2014 (1) US$...

  • Page 388
    ...24,597 Notes: (1) On-lent to The Royal Bank of Scotland plc on a subordinated basis. (2) Unconditionally guaranteed by the company. (3) Transferred to the Dutch State on legal separation of ABN AMRO Holding N.V. in 2010. (4) In the event of certain changes in tax laws, dated loan capital issues may...

  • Page 389
    Undated loan capital 2011 £m 2010 £m 2009 £m The Royal Bank of Scotland Group plc US$106 million (2010 - US$106 million; 2009 - US$163 million) undated floating rate primary capital notes (callable on any interest payment date) (1,2) US$762 million 7.648% perpetual regulatory tier one securities...

  • Page 390
    ... approval. (10) Interest on all floating rate subordinated notes is calculated by reference to market rates. Preference shares 2011 £m 2010 £m 2009 £m The Royal Bank of Scotland Group plc (1) Non-cumulative preference shares of US$0.01 Series F US$156 million (2010 - US$156 million; 2009 - US...

  • Page 391
    ... payment would breach the capital adequacy requirements of the UK Financial Services Authority. Distributions are not made if dividends are not paid on any series of the company's non-cumulative preference shares. The company classifies its obligations to these subsidiaries as dated loan capital...

  • Page 392
    Notes on the consolidated accounts continued 26 Non-controlling interests ABN AMRO £m Other interests £m Total £m At 1 January 2010 Currency translation and other adjustments (Loss)/profit attributable to non-controlling interests - continuing operations - discontinued operations Dividends paid ...

  • Page 393
    ...,410 58,458,131 770,281 59,228,412 Ordinary shares During the year, the issued ordinary share capital was increased by 770 million ordinary shares in connection with employee share schemes. B shares and dividend access share In December 2009, the company entered into an acquisition and contingent...

  • Page 394
    Notes on the consolidated accounts continued 27 Share capital continued The dividend access share entitles the holder to dividends equal to the greater of 7% of the aggregate issue price of B shares issued to HM Treasury and 250% of the ordinary dividend rate multiplied by the number of B shares ...

  • Page 395
    ...to do so. Hybrid capital instruments issued after 24 November 2009 will generally not be subject to the restriction on dividend or coupon payments or call options. 28 Other equity Paid-in equity - notes issued under the company's euro medium term note programme with an initial par value of US$1,600...

  • Page 396
    ...2011 £m 2010 £m 2009 £m Nature of operating lease assets on the balance sheet Transportation Cars and light commercial vehicles Other 1,549 995 161 2,705 6,162 1,016 208 7,386 6,039 1,352 403 7,794 Amounts recognised as income and expense Finance leases - contingent rental income Operating...

  • Page 397
    ... value of finance lease receivables (see pages 340 to 343) and operating lease assets (see pages 373 and 374). Year in which residual value will be recovered After 2 years After 1 year but within but within After 5 5 years years 2 years £m £m £m 2011 Within 1 year £m Total £m Operating...

  • Page 398
    ...Asset type (3) Mortgages - UK (RMBS) - UK (covered bonds) - Irish UK credit cards UK personal loans Other loans (4) Cash deposits (5) Assets £m 2011 Debt securities in issue Held by third Held by the parties (1) Group (2) £m £m Total £m Assets £m 2010 Debt securities in issue Held by third...

  • Page 399
    ... lending transactions Loans and advances to banks Loans and advances to customers Debt securities 2011 £m 2010 £m 2009 £m 19,691 52,225 3,713 75,629 27,271 46,352 7,200 80,823 25,712 38,924 8,723 73,359 Liabilities secured by assets Deposits by banks Customer accounts Debt securities in issue...

  • Page 400
    ... on the consolidated accounts continued 31 Capital resources The Group's regulatory capital resources in accordance with Financial Services Authority (FSA) definitions were as follows: Shareholders' equity (excluding non-controlling interests) Shareholders' equity per balance sheet Preference shares...

  • Page 401
    ... business. In carrying out this policy, the Group has regard to the supervisory requirements of the FSA. The FSA uses risk asset ratio (RAR) as a measure of capital adequacy in the UK banking sector, comparing a bank's capital resources with its risk-weighted assets (the assets and off-balance sheet...

  • Page 402
    ... of credit, supporting customer debt issues and contingent liabilities relating to customer trading activities such as those arising from performance and customs bonds, warranties and indemnities. Commitments Commitments to lend - under a loan commitment the Group agrees to make funds available to...

  • Page 403
    ...relation to protected deposits, each deposit-taking institution contributes towards these levies in proportion to their share of total protected deposits on 31 December of the year preceding the scheme year (which runs from 1 April to 31 March), subject to annual maxima set by the Financial Services...

  • Page 404
    ... vigorously. Other securitisation and securities related litigation in the United States Recently, the level of litigation activity in the financial services industry focused on residential mortgage and credit crisis related matters has increased. As a result, the Group has become and expects that...

  • Page 405
    ...in which Group companies are defendants include New Jersey Carpenters Vacation Fund et al. v. The Royal Bank of Scotland plc et al.; New Jersey Carpenters Health Fund v. Novastar Mortgage Inc. et al.; In re IndyMac Mortgage-Backed Securities Litigation; Genesee County Employees' Retirement System et...

  • Page 406
    ... conditions. On 26 March 2008, the EC opened a formal inquiry into Visa's current MIF arrangements for cross border payment card transactions with Visa branded debit and consumer credit cards in the European Union and on 6 April 2009 the EC announced that it had issued Visa with a formal Statement...

  • Page 407
    ...looked at products which require a banking licence to sell mortgages, loan products and, where appropriate, other products such as insurance or credit cards where cross-selling may facilitate entry or expansion. The OFT published its report in November 2010. It advised that it expected its review to...

  • Page 408
    ...on 12 September 2011 (the "Final Report"). The Final Report makes a number of recommendations, including in relation to (i) the implementation of a ring-fence of retail banking operations, (ii) loss-absorbency (including bail-in) and (iii) competition. On 19 December 2011 the UK Government published...

  • Page 409
    ... Discontinuance required RBS Financial Products Inc. to make payments totalling approximately US$52 million. In 2007, the New York State Attorney General issued subpoenas to a wide array of participants in the securitisation and securities industry, focusing on the information underwriters obtained...

  • Page 410
    ... Japanese Financial Services Agency. The authorities are seeking documents and communications related to the process and procedures for setting LIBOR and other interest rates, together with related trading information. In addition to co-operating with the investigations as described above, the Group...

  • Page 411
    ... by banks and customers (Decrease)/increase in insurance liabilities Decrease in debt securities in issue Increase in other liabilities Increase/(decrease) in derivative liabilities (Decrease)/increase in settlement balances and short positions Changes in operating liabilities Income taxes (paid...

  • Page 412
    ... of changes in financing during the year Share capital, share premium, paid-in equity and merger reserve 2010 2011 £m £m 2009 £m Subordinated liabilities 2011 2010 £m £m 2009 £m At 1 January Issue of ordinary shares Redemption of preference shares Placing and open offer Issue of B shares...

  • Page 413
    ... in the United States and through non-branch offices in other states. Global Banking & Markets (GBM) is a leading banking partner to major corporations and financial institutions around the world, providing an extensive range of debt and equity financing, risk management and investment services to...

  • Page 414
    ... £m Operating profit/(loss) £m 2011 UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Global Banking & Markets RBS Insurance Central items Core Non-Core Managed basis Reconciling items Fair value of own debt Asset Protection Scheme Payment Protection...

  • Page 415
    ...) (356) (2,647) Total income UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Global Banking & Markets RBS Insurance Central items Core Non-Core Managed basis Reconciling items Fair value of own debt Asset Protection Scheme Integration and restructuring...

  • Page 416
    ... £m Total £m Inter segment £m Total revenue UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Global Banking & Markets RBS Insurance Central items Core Non-Core Managed basis Reconciling items Fair value of own debt Asset Protection Scheme Integration...

  • Page 417
    ...£m UK Corporate £m Global Transaction Services £m US Retail & Commercial £m Global Banking & Markets £m RBS Insurance £m RFS Holdings minority interest £m Wealth £m Non-Core £m Total £m At 1 January 2009 Transfers to disposal groups Currency translation and other adjustments Write-down...

  • Page 418
    Notes on the consolidated accounts continued 38 Segmental analysis continued (b) Geographical segments continued UK £m USA £m Europe £m Rest of the World £m Total £m 2010 Total revenue Net interest income Net fees and commissions Income from trading activities Other operating income/(loss) ...

  • Page 419
    ...: 2011 £000 2010 £000 Loans and advances to customers Customer accounts 19,366 33,149 10,970 10,641 Key management have banking relationships with Group entities which are entered into in the normal course of business and on substantially the same terms, including interest rates and security...

  • Page 420
    ... consolidated accounts continued 41 Related parties UK Government On 1 December 2008, the UK Government through HM Treasury became the ultimate controlling party of The Royal Bank of Scotland Group plc. The UK Government's shareholding is managed by UK Financial Investments Limited, a company wholly...

  • Page 421
    ... five-year credit default swap spread during the twelve months to 1 July 2008. The asset-backed securities scheme closed to new issuance on 31 December 2009 and the credit guarantee scheme on 28 February 2010. At 31 December 2011, the Group had issued debt guaranteed by the Government totalling £21...

  • Page 422
    Parent company financial statement and notes Balance sheet as at 31 December 2011 2011 £m 2010 £m 2009 £m Note Assets Loans and advances to banks Loans and advances to customers Debt securities Investments in Group undertakings Derivatives Prepayments, accrued income and other assets Total ...

  • Page 423
    Statement of changes in equity for the year ended 31 December 2011 2011 £m 2010 £m 2009 £m Called-up share capital At 1 January Ordinary shares issued in respect of placing and open offer B shares issued Ordinary shares issued Preference shares redeemed Cancellation of non-voting deferred shares...

  • Page 424
    Parent company financial statement and notes continued Statement of changes in equity continued 2011 £m 2010 £m 2009 £m Retained earnings At 1 January Loss attributable to ordinary and B shareholders and other equity owners Equity preference dividends paid Paid-in equity dividends paid, net of ...

  • Page 425
    ... and open offer Issue of B shares Redemption of paid-in equity Issue of subordinated liabilities Redemption of preference shares Repayment of subordinated liabilities Dividends paid Interest on subordinated liabilities Net cash flows from financing activities Effects of exchange rate changes on...

  • Page 426
    ...through profit or loss, available-for-sale financial assets and investment property. Recognised financial assets and financial liabilities in fair value hedges are adjusted for changes in fair value in respect of the risk that is hedged. The accounting policies that are applicable to the company are...

  • Page 427
    ... - loans and receivables Investment in Group undertakings Derivatives (1) - held-for-trading - hedging Prepayments, accrued income and other assets - loans and receivables - non-financial assets Liabilities Deposits by banks (2) - amortised cost Customer accounts (3) - amortised cost Debt securities...

  • Page 428
    ... in issue Subordinated liabilities 2009 Deposits by banks Customer accounts Debt securities in issue Derivatives held for hedging Subordinated liabilities For further information on the timing of cash flows to settle financial liabilities, see Note 12 on the consolidated accounts. 426 RBS Group...

  • Page 429
    ...statements and have an accounting reference date of 31 December. Nature of business Country of incorporation and principal area of operation Group interest The Royal Bank of Scotland plc National Westminster Bank Plc (1) Citizens Financial Group, Inc. Coutts & Company (2) RBS Securities Inc. Direct...

  • Page 430
    ... preference shares issued by the company are classified as liabilities; these securities remain subject to the capital maintenance rules of the Companies Act 2006. 2011 Currently £m 2012 £m 2013 £m 2014-2016 £m 2017-2021 £m Thereafter £m Perpetual £m Total £m - final redemption - call date...

  • Page 431
    ... accounts. (2) Partially repurchased following completion of the exchange and tender offers in May 2010. (3) Partially converted into ordinary shares in the company in 2010. 11 Share capital Details of the company's share capital are set out in Note 27 on the consolidated accounts. RBS Group 2011...

  • Page 432
    ... of changes in financing during the year Share capital, share premium, paid-in equity and merger reserve 2010 2011 £m £m Subordinated liabilities 2011 2010 £m £m 2009 £m 2009 £m At 1 January Issue of ordinary shares Redemption of preference shares Placing and open offer Issue of B shares...

  • Page 433
    ... key management remuneration The directors' and key management of the Group and company are the same. Note 39 on the consolidated accounts on page 417 provides detailed disclosures. 17 Related parties Key management had no reportable transactions or balances with the company. RBS Group 2011 431

  • Page 434
    Additional information 433 Financial summary 441 Exchange rates 442 Economic and monetary environment 443 Supervision 444 Regulatory developments and reviews 445 Description of property and equipment 445 Major shareholders 445 Material contracts 451 Risk factors 432 RBS Group 2011

  • Page 435
    ... (10) Includes interest rate hedge adjustments on impaired available-for-sale Greek government bonds of £169 million. Summary consolidated balance sheet Loans and advances Debt securities and equity shares Derivatives and settlement balances Other assets Total assets Owners' equity Non-controlling...

  • Page 436
    ... - pence Dividends per ordinary share - pence (1) Dividend payout ratio (3) Share price per ordinary share at year end - £ Market capitalisation at year end - £bn Net asset value per ordinary and B share - £ Return on average total assets (4) Return on average ordinary and B shareholders' equity...

  • Page 437
    ... of customer. Within 1 year £m After 1 year but within 5 years £m After 5 years £m 2011 Total £m 2010 £m 2009 £m 2008 £m 2007 £m UK Central and local government Finance Residential mortgages Personal lending Property Construction Manufacturing Service industries and business activities...

  • Page 438
    ... and 'Critical accounting policies' on page 323. The following table shows the movements in loan impairment provisions. 2011 £m 2010 £m 2009 £m 2008 £m 2007 £m Provisions at the beginning of the year Domestic Foreign Transfer to disposal groups Domestic Foreign Currency translation and other...

  • Page 439
    ... ratios, closing customer provisions and customer charge relating to loans and advances to banks are excluded. The following table shows additional information in respect of loan impairment provisions. 2011 £m 2010 £m 2009 £m 2008 £m 2007 £m Loan impairment provisions at end of year Customers...

  • Page 440
    ... customer. 2011 £m 2010 £m 2009 £m 2008 £m 2007 £m Domestic Manufacturing Construction Finance Service industries and business activities Agriculture, forestry and fishing Property Residential mortgages Personal lending Finance leases and instalment credit Total domestic Foreign Total write...

  • Page 441
    ... past due 90 days or revolving credit facilities where identification as 90 days overdue is not feasible. 2011 £m 2010 £m 2009 £m 2008 £m 2007 £m Potential problem loans 739 633 1,009 226 671 Both REIL and PPL are reported gross and take no account of the value of any security held which...

  • Page 442
    ... - savings - other Total UK offices Overseas Demand deposits - interest-free - interest-bearing Time deposits - savings - other Total overseas offices Total deposits Held-for-trading Designated as at fair value through profit or loss Amortised cost Total deposits Overseas US Rest of the World Total...

  • Page 443
    ... as stated, the following tables show, for the dates or periods indicated, the Noon Buying Rate in New York for cable transfers in sterling as certified for customs purposes by the Federal Reserve Bank of New York. US dollars per £1 Noon Buying Rate High Low January 2012 December 2011 November 2011...

  • Page 444
    ... or exchange rate gains in a currency union. By the end of the year, the euro area was in recession, exacerbating the debt problem. Europe's leaders avoided both a disorderly default and a break-up of the euro area. However, it will take political will and public support to manage the immediate risk...

  • Page 445
    Supervision United Kingdom The UK Financial Services Authority (FSA) is the consolidated supervisor of the Group. As at 31 December 2011, 26 companies in the Group (excluding subsidiaries of RBS NV), spanning a range of financial services sectors (banking, insurance and investment business), were ...

  • Page 446
    ...Review), the FSA's proposals on Product Intervention and the European Directive on Mortgages. The Group worked closely with the Government (the Department of Business, Innovation and Skills) and the industry to develop and implement annual credit card statements to improve transparency for customers...

  • Page 447
    ... its principal offices in London at 135 and 280 Bishopsgate and the Drummond House administration centre located at South Gyle, Edinburgh. Total capital expenditure on premises (excluding investment properties), computers and other equipment in the year ended 31 December 2011 was £820 million (2010...

  • Page 448
    ... Government backed schemes, the objective of which was to reinforce the stability of the financial system and support the recovery of the economy. Pursuant to this lending commitment, the company agreed to increase its lending in the 12 months commencing 1 March 2009 from its UK banking operations...

  • Page 449
    ... terms of the Contingent Subscription as a result of future legislative or regulatory changes; (iv) negotiating in good faith to maintain the status of the B shares and Dividend Access Share as Core Tier 1 capital; and (v) restrictions in relation to the company's share premium account. RBS Group...

  • Page 450
    ... were signed on 27 August 2010, 20 December 2010, 25 January 2011, 10 February 2011, 30 June 2011, 22 July 2011 and 18 August 2011. The Accession Agreement incorporates by reference the terms and conditions of the APS set out in the document entitled 'UK Asset Protection Scheme Terms and Conditions...

  • Page 451
    ... to sell 311 Royal Bank of Scotland branded branches in England and Wales, seven NatWest branded branches in Scotland, the retail and SME customer accounts attached to these branches, the Direct SME business, and certain mid-corporate businesses and associated assets and liabilities to Santander UK...

  • Page 452
    ... 2010 balance sheet, of which the Group's share is approximately 51 per cent, i.e. US$112 million. The value of the gross assets acquired by JPMorgan was US$6 billion (unaudited) as of 30 June 2010. Sale of Global Merchant Services business On 6 August 2010, the Royal Bank, Citizens Financial Group...

  • Page 453
    ...of 2011, a heightened risk of sovereign default relating to certain EU member states has had a negative impact on capital and credit markets. Such challenging economic and market conditions have exerted downward pressure on asset prices and on credit availability and upward pressure on funding costs...

  • Page 454
    ... Group's financial conditions and results of operations and/or result in a loss of value in its securities. The Independent Commission on Banking has published its final report on competition and possible structural reforms in the UK banking industry. The UK Government has indicated that it supports...

  • Page 455
    ... restructuring, in January 2012 the Group announced changes to its wholesale banking operations, including the reorganisation of its wholesale businesses and the exit and downsizing of selected existing activities (including cash equities, corporate banking, equity capital markets, and mergers and...

  • Page 456
    ...-corporate customers across the UK. While the disposal of GMS is completed and the disposal of RBS Sempra Commodities is largely completed, the sale processes in respect of the Royal Bank and NatWest branch-based business and RBS Insurance continue to progress. There is no assurance that the price...

  • Page 457
    ... markets and also has concentrated country exposure in the UK, the US and across the rest of Europe (particularly Ireland) and within certain business sectors, namely personal finance, financial institutions and commercial real estate. For a discussion of the Group's exposure to country risk...

  • Page 458
    ... of asset-backed collateralised debt obligations, residential mortgage-backed securities and the leveraged loan market. In dislocated markets, hedging and other risk management strategies may not be as effective as they are in normal market conditions due in part to the decreasing credit quality of...

  • Page 459
    ... financial performance and business operations. The Group's borrowing costs, its access to the debt capital markets and its liquidity depend significantly on its and the UK Government's credit ratings The credit ratings of the Group, the Royal Bank and other Group members have been subject to change...

  • Page 460
    ... a result of such payment. At 31 December 2011, the Group's Tier 1 and Core Tier 1 capital ratios were 13.0% and 10.6%, respectively, calculated in accordance with FSA requirements. Any change that limits the Group's ability to manage effectively its balance sheet and capital resources going forward...

  • Page 461
    ..., profitability, financial condition and prospects or result in a loss of value of its securities. The Group could fail to attract or retain senior management, which may include members of the Board, or other key employees, and it may suffer if it does not maintain good employee relations The Group...

  • Page 462
    ...; changes to financial reporting standards (including accounting standards), corporate governance requirements, corporate structures and conduct of business rules; the imposition of restrictions on the Group's ability to compensate its senior management and other employees; regulations relating to...

  • Page 463
    ...potential obligations The Group maintains a number of defined benefit pension schemes for past and a number of current employees. Pensions risk is the risk that the assets of the Group's various defined benefit pension schemes which are long-term in nature do not fully match the timing and amount of...

  • Page 464
    ... and capital from negative public opinion, is inherent in the Group's business. Negative public opinion can result from the actual or perceived manner in which the Group conducts its business activities, from the Group's financial performance, from the level of direct and indirect government support...

  • Page 465
    ...benefits of the APS and, therefore, the Group's financial condition and results of operations. Lastly, the APS is treated as a credit derivative accounted for at fair value, which exhibits counter-cyclical behaviour. As a result, improving market conditions result in a charge to the income statement...

  • Page 466
    ... billion Contingent B Shares are not sufficient to maintain the Group's capital ratios as expected, this could cause the Group's business, results of operations and financial condition to suffer, its credit ratings to drop, its ability to lend and access to funding to be further limited and its cost...

  • Page 467
    ...Analyses of ordinary shareholders 468 Trading market 471 Dividend history 472 Taxation for US Holders 475 Exchange controls 475 Memorandum and Articles of Association 475 Incorporation and registration 476 Glossary of terms 484 Index 487 Important addresses 487 Principal offices RBS Group 2011 465

  • Page 468
    ....co.uk. You will need the shareholder reference number printed on your share certificate or tax voucher to gain access to this information. Listed below are the most commonly used features on the Investor Centre: Braille and audio Annual Review and Summary Financial Statement Shareholders...

  • Page 469
    ... found most share fraud victims are experienced investors who lose an average of £20,000, with around £200 million lost in the UK each year. Protect yourself If you are offered unsolicited investment advice, discounted shares, a premium price for shares you own, or free company or research reports...

  • Page 470
    ... and holders from time to time of ADSs issued thereunder. The ordinary shares of the company are listed and traded on the London Stock Exchange. All ordinary shares are deposited with the principal London office of The Bank of New York Mellon, as custodian for the depository. 468 RBS Group 2011

  • Page 471
    ... periods indicated, the high and low sales prices for each of the outstanding ADSs representing non-cumulative dollar preference shares and PROs, as reported on the NYSE or...85.13 73.25 84.75 67.13 By year 2011 2010 2009 2008 2007 High Low High Low High Low High Low High Low 25.05 16.21 23.97 16.57...

  • Page 472
    ... sales prices for the company's ordinary shares on the London Stock Exchange, as derived from the Daily Official List of the UK Listing Authority. Prices for 2008 and 2007 were restated for the effect of the rights issue in June 2008 and the capitalisation issue in September 2008. By month January...

  • Page 473
    ... any dividends prior to the final dividend in respect of 2007. (2) In 2008, the company issued new ordinary shares by way of a capitalisation issue rather than paying an interim dividend. (3) Final dividends were proposed in the indicated year and paid in the following year. RBS Group 2011 471

  • Page 474
    ...receive such shares) will constitute foreign source dividend income for US federal income tax purposes to the extent paid out of the current or accumulated earnings and profits of the company, as determined for US federal income tax purposes. Because the company does not maintain calculations of its...

  • Page 475
    ...'s) receipt of the dividend. The amount of any dividend paid in pounds sterling to be included in income by a US Holder will be the US dollar amount calculated by reference to the relevant exchange rate in effect on the date of such receipt regardless of whether the payment is in fact converted...

  • Page 476
    ... market of the New York Stock Exchange. In all other cases, an amount must be withheld on account of UK income tax at the basic rate (currently 20%) subject to any direction to the contrary by HM Revenue & Customs under the Treaty and except that the withholding obligation does not apply to payments...

  • Page 477
    .... Foreign financial assets reporting For taxable years beginning after 18 March 2010, certain US Holders who are individuals may be required to report information relating to the company's securities, subject to certain exceptions (including an exception for securities held in accounts maintained by...

  • Page 478
    ... balance sheet. Changes in its fair value are recognised in profit or loss within Income from trading activities. Assets under management - assets managed by the Group on behalf of clients. Bank levy - a levy that applies to certain UK banks, building societies and the UK operations of foreign banks...

  • Page 479
    ..., agricultural land and buildings, warehouses, garages etc. Constant proportion portfolio insurance notes (CPPI notes) - CPPI is the name given to a trading strategy that is designed to ensure that a fixed minimum return is achieved either at all times or more typically, at a set date in the future...

  • Page 480
    ... re-exchanged. Customer accounts - money deposited with the Group by counterparties other than banks and classified as liabilities. They include demand, savings and time deposits; securities sold under repurchase agreements; and other short term deposits. Deposits received from banks are classified...

  • Page 481
    ... Mac (Federal Home Loan Mortgage Corporation) - a US Government Sponsored Enterprise. It buys mortgages, principally issued by thrifts, on the secondary market, pools them, and sells them as residential mortgage-backed securities to investors on the open market. Its obligations are not explicitly...

  • Page 482
    ... and a loan being identified and reported as impaired. Level 1: quoted price - level 1 financial instruments are valued using unadjusted quoted prices in active markets, for identical financial instruments. Examples include G10 government securities, listed equity shares, certain exchange-traded...

  • Page 483
    ... is a contract that gives the holder the right but not the obligation to buy (or sell) a specified amount of the underlying physical or financial commodity, at a specific price, at an agreed date or over an agreed period. Options can be exchange-traded or traded over-thecounter. RBS Group 2011 481

  • Page 484
    ...monthly housing expense (mortgage payments plus taxes and other debt payments). These borrowers provide full documentation and generally have reliable payment histories. Private equity investments - equity investments in operating companies not quoted on a public exchange. Capital for private equity...

  • Page 485
    ...shortterm, highly rated commercial paper and medium-term notes. Structured notes - securities that pay a return linked to the value or level of a specified asset or index. Structured notes can be linked to equities, interest rates, funds, commodities and foreign currency. Student loan related assets...

  • Page 486
    ... the UK Corporate Governance Code Risk management The Board and its committees Debt securities in issue Risk and balance sheet management Notes on the consolidated accounts Deposits Customer accounts Deposits by banks Derivatives Risk and balance sheet management Notes on the consolidated accounts...

  • Page 487
    ...year financial summary Forward-looking statements Global Banking & Markets Global Transaction Services Glossary of terms Going concern Report of the directors Goodwill Accounting policies Notes on the consolidated accounts Group Chief Executive's review Impairment Accounting policies Business review...

  • Page 488
    ... Risk and balance sheet management Business risk Capital management Compliance risk Country risk Credit risk Equity risk Insurance risk Interest rate risk Liquidity and funding risk Market risk Operational risk Pension risk Reputational risk Structural foreign currency exposures Risk-weighted...

  • Page 489
    ...Royal Bank of Scotland Group plc PO Box 1000 Gogarburn Edinburgh EH12 1HQ Telephone: +44 (0)131 556 8555 Facsimile: +44 (0)131 626 3081 Investor Relations 280 Bishopsgate London EC2M 4RB Telephone: +44 (0)207 672 1758 Facsimile: +44 (0)207 672 1801 Email: [email protected] Registered office...

  • Page 490
    Published by The Royal Bank of Scotland Group plc Printed at Anton Group Ltd, ISO14001, FSC certified Anton to supply new Paper creds This report is printed on Cocoon 50:50 Silk paper. This paper has been independently certified according to the rules of the Forest Stewardship Council (FSC). Please...